Getting some facts straight in Microfinance
Big concerns over small loans
By Bindu Ananth and Nachiket Mor, IFMR Trust
The recent controversy surrounding the microfinance sector has entirely eclipsed the fact that it is the first effort in India to have delivered financial services to remote corners of the country in a self-sustaining manner. The stakes are high for India’s poor, and we have to pave the way for orderly growth in the sector. Here is our view on some key issues that have featured in the current debate.
High-interest rates: The effective interest rate charged by microfinance institutions (MFIs) to their clients have varied between 24% and 40% per annum. Given that default rates on microfinance loans are extremely low, these rates seem “usurious”. MFIs justify them, citing high operating costs involved in serving remote areas with small loans.
However, recent equity market valuations suggest that in reality, stable return on assets is 8-10% for an efficient MFI charging 28%—much higher than that of banks and other non-banking financial companies. So, even while it is true that these rates are lower than those charged by informal lenders and within the envelope of returns earned by clients from micro-enterprises, there is clearly massive room for lower rates. But the big question is: How will these lower rates come about?
Read the rest on Livemint
On Microfinance: Who’s to Blame for the Crisis in Andhra Pradesh
By Elisabeth Rhyne, Managing Director, Center for Financial Inclusion
When a story on microfinance appears in major media outlets, the effect on the public image of the sector can be dramatic. That’s why last Friday’s article in the Wall Street Journal, “India’s Major Crisis in Microlending,” requires a response.
The story covers a microfinance crisis in the southern Indian state of Andhra Pradesh, triggered by sensationalized newspaper accounts of suicides among over-indebted clients of some of India’s biggest microfinance institutions (MFIs): SKS Microfinance, Spandana, Share, and others. Read the rest on Huffington Post
Fino takes money transfer facility to the poor
Ram Lal, a 40-year-old laborer from Uttar Pradesh (UP), works at a construction site in Mumbai earning about Rs 200 a day, with no idea how to make banking transactions. He saves every paise to support his family in Uttar Pradesh and sends money home once in two months through his friends or postal money order.
Saving and storing money was a tough call for him. But now, all that he does is walk up to the closest business correspondent (BC) transaction point, deposit money and even remit it to his family in Uttar Pradesh at any time of the day! Read more on Hindu Businessline