Microfinance brings socio-economic changes
KATHMANDU, DEC 21:
Microfinance institutions (MFIs) have done a commendable job in socially and economically strengthening the poor and deprived populace. However, they have to be careful about not overburdening their target clients, according to experts.
“MFIs have undertaken half the job of the government in terms of social changes in rural areas by assisting in poverty alleviation, women empowerment, creating social awareness, and enhancing the state of not only financial literacy but also of general literacy,” pointed out deputy governor of Nepal Rastra Bank Gopal Prasad Kafle during the inaugural ceremony of a national conference on microfinance, ‘Revisiting Nepal Microfinance Vision 2015’, here today.
He also called attention to the problems of multiple lending in certain easily accessible areas that will eventually hurt the institutions themselves if the clients are unable to repay the loans.
However, the trend among MFIs that are distributing dividends as high as 28 per cent by increasing profits by charging higher interest rate is not helping the cause of microfinance at all, Kafle added.
“It is widely known that MFIs are charging high interest rates because their operation cost is higher, and if the government wants the poorest of the poor to get loans at lower interests, it should subsidise either the operating cost or the interest rate,” he suggested.
Vice chair of National Planning Commission Deependra Bahadur Kshetry also expressed that MFIs have fulfilled a large part of the government’s goal of social awareness. “The goal of MFIs has not been limited to providing credit to clients but is changing their lives completely for the better, be it in terms of women’s status, literacy or hygiene,” he said, stressing that increased numbers of MFIs in a concentrative manner is worrying. However, as the demand for rural micro credit is far higher than supply there is enough space for existing MFIs to expand their operations.
According to a study, there is a need of a minimum of Rs 18 billion and the government has been able to pump in only Rs four billion to Rs five billion, leaving enough room for MFIs to expand their services due to low Human Development Index, though it is not a matter of pride, Kshetry added.
Chief executive of Rural Microfinance Development Center (RMDC) — one of the organisers of the conference — Shankar Man Shrestha also pointed out that micro credit services along with other credit plus services being provided by MFIs have played a pivotal role in changing the lives of clients.
The number of people living below the poverty line has come down to 25.16 per cent at present, which used to be 30.85 per cent just a few years back.
“Despite the huge contribution towards poverty alleviation, MFIs now are showing signs of ‘mission-drift due to expectations of exponential profits’,” he added, cautioning the MFIs that they should stick with lending to the poorest of the poor who repay loans loyally so that their businesses stay sustainable.
“The practice of hiding bad loans and snatching clients or insisting on multiple lending will hurt them,” he added. “Cut-throat competition and duplication are also emerging as challenges for the sector.”
The chairman of RMDC Ashoke SJB Rana also urged MFIs to improve their corporate governance and managerial quality so that they can make maximum use of existing resources.
The two-day conference will witness Nobel Laureate Prof Muhammad Yunus — the father of microfinance — as a key note speaker on Friday.
Source: THT
