Re: [mpisgmedia] microfinance for poor

Very interesting!

This bandwagon started with the assumption that formal credit institutions do not lend to the poor for productive enterprises as they do not find them credit-worthy, costs of lending and recovery are high etc. This led to formation of self-help groups (SHGs), usually involving low-income women. Members save and accumulate a certain amount, and then get a matching grant from the Government. The SHG lends to its own members, and recovers capital and interest from them. Interest rates tend to be very high and this process has been going on parallel to the dismantling and/or re-targeting of the government credit system through nationalised banks (and the priority sector targets they used to follow). So essentially, microfinance for microenterprises. Soon federations of SHGs developed, with very impressive asset bases. Corporates began tying up with SHGs, outsourcing some part of production activities to them, and also saw them as good markets for low-priced consumer products. Th
at is, cheap rural marketing. Microfinance institutions (MFIs) park their funds in banks, making the latter happy. Later, they began borrowing from banks, making them happier still. So now, international financial institutions and capital markets smell an opportunity to lend, recover and profit. At the core of all this lending and borrowing are the microenterprises and the value generated by them.

The question is: what and where are these microenterprises that support these elaborate financial structures? What goods and services do they make which the corporate sector is not already doing? Is it all just a financial bubble with very little productive activity at the core? Or is it hiding a very exploitative structure where the actual producers are getting very little returns for their labour, exploited by the providers of credit and buyers of their goods and services? Frankly, I have no clear answers to these questions and do not know whether anybody is working on MFIs from this angle.

A clutch of articles can be seen at

Can someone simplify this.

A capital market for the poor
30 August, economic times

Sa-Dhan, the Association of Community Development Finance Institutions, estimates that as of December 31, 2004, microfinance loans outstanding in India totaled 1,600 crore, approximately $320 m. Yet potential demand for microfinance services is estimated at between Rs 30,000 and Rs 60,000 crore.

Full story:
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  • [mpisgmedia] capital market for poor + 40000 cr social sector outlay
    • From: Gita Dewan Verma
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