Microfinance institutions start deviating from their goals

KATHMANDU, NOV 11: 

Though microfinance has been successful to uplift lives of rural poor, concerns have been raised about increasing profit-centricity of micro credit institutions pushing borrowers over the edge with multiple debts.

“The basic thrust of micro credit services has to be in providing the poorest of the poor start up capital for micro ventures in which microfinance institutions can be considered successful,” said Shankar Man Shrestha, CEO of Rural Microfinance Development Centre (RMDC) — the wholesale lender to microfinance institutions — during the launching of Global Microcredit Summit campaign report here in Kathmandu today. At present, existing micro finance institutions are catering to estimated 1.7 million households by providing hassle free micro loans sans collateral.

There are 100 microfinance institutions affiliated to RMDC that comprises 76 per cent of total micro credit market, he added.

Microfinance services have been attributed as one of the factors that have contributed in poverty alleviation in Nepal. Along with noticeably improving the living standard of the members these services have brought huge social changes in the backward rural areas – especially in the area of women empowerment. However, since some time, the microfinance institutions are being criticised for overburdening poor due to multiple lending. 

“Lately some MFIs have become profit centric thus to earn more profit have started to lend larger sized loans to less poor thus the target group are being left out,” Shrestha, said, attributing lending larger amount to non poor as the reason for defaults saying ‘non poor borrow to meet other expenses not as start up capital sometimes even leading to defaults’. “Bringing the unbanked population inside banking net can be considered one of the most important achievements,” he expressed, adding that the microfinance service has generated savings worth Rs 5.8 billion from the target population.

There are about 205 million people worldwide that have availed micro loans, the global report said, adding that the more than 137.5 million of the world’s poorest families received microloan in 2010.

Source: THT