Introduction:The concept
of Microfinance is dealing with providing low interest and minimum formalities
in financial asssiatnce to small scale and cottage industries in Maharashtra.
The theoretical base of MicroFinance is developing the system through which the
business or individual can get an almost unsecured loan, sometimes with
guarantor and sometimes just with the honest trust and the assumption that the
money would be paid back promptly with the interest by the borrower.
Entry of private sector in
Micro finance;The private sector has entered basically in the format of
‘Patpedis’ in the regions of Maharashtra. These Patpedhi’s are nothing but
small groups of unorganized sector which come together with funds and profits
from the lending activities to the various members of the fund.
From a very preliminary stage of
the MoneyLender Controlled lending now
the same has been transformed into the Professional and customer friendly
format of lending in Maharshtra and we appreciate the same thing as
Microfinance. To put it in simple words it is providing the financial solutions
to the needy group based on the trust and the repayment capacity expected from
the earlier transactions.
Growth of Microfinance in Maharshtra: Modern
microfinance emerged in the 1970s with a strong orientation towards
private-sector solutions. This resulted from evidence that state-owned
agricultural development banks in developing countries had been a monumental
failure, actually undermining the development goals they were intended to
serve. Microfinance experts generally agree that women should be the primary
focus of service delivery. Evidence shows that they are less likely to default
on their loans than men. Industry data from 2006 for 704 MFIs reaching 52
million borrowers includes MFIs using the solidarity lending methodology
(99.3% female clients) and MFIs using individual lending (51% female clients).
The delinquency rate for solidarity lending was 0.9% after 30 days (individual
lending—3.1%), while 0.3% of loans were written off (individual
lending—0.9%).Because operating margins become tighter the smaller the loans
delivered, many MFIs consider the risk of lending to men to be too high. This
focus on women is questioned sometimes, however. A recent study of
microenterpreneurs from Sri Lanka published by the World Bank found that the
return on capital for male-owned businesses (half of the sample) averaged 11%,
whereas the return for women-owned businesses was 0% or slightly negative.
Scope of Micro Finance: Regionally the highest concentration of these accounts was
in India (188 million accounts representing 18% of the total
national population). The lowest concentrations were in Latin American and the Caribbean (14 million accounts representing 3% of the total
population) and Africa (27 million accounts representing 4% of the total
population, with the highest rate of penetration in West Africa, and the
highest growth rate in Eastern and Southern Africa ). Considering that most bank
clients in the developed world need several active accounts to keep their
affairs in order, these figures indicate that the task the microfinance
movement has set for itself is still very far from finished.
By type of service "savings accounts in alternative
finance institutions outnumber loans by about four to one. This is a worldwide
pattern that does not vary much by region."
An important source of detailed data on selected
microfinance institutions is the MicroBanking
Bulletin, which is published by Microfinance
Information Exchange. At the end of 2009 it was
tracking 1,084 MFIs that were serving 74 million borrowers ($38 billion in
outstanding loans) and 67 million savers ($23 billion in deposits).
As yet there are no studies that indicate the scale or
distribution of 'informal' microfinance organizations like ROSCA's
and informal associations that help people manage costs like weddings, funerals
and sickness. Numerous case studies have been published however, indicating
that these organizations, which are generally designed and managed by poor
people themselves with little outside help, operate in most countries in the
developing world.
Help can come in the form of more and better qualified
staff, thus higher education is needed for microfinance institutions.
Challenges of
Micro Finance Institutions:
n
the recent years, though money lending through MFIs has become a major
financial activity in the villages, barbaric and inhuman methods such as harassing borrowers, intimidating, abusing,
mentally and physically harassing them have been incorporated into the whole
process of money lending. The borrowers are always under the pressure to repay
the loan (on a weekly basis) at a heavy compound interest for petty loans they
take.
Another argument is that MFIs lend money
at exorbitant interest rates which range from 20 percent to 40 percent. This
ugly face of MFIs gives us a vivid picture of the dark underbelly which is now
making its way into the media.
In
the name of empowering the poor, this form of organized exploitation has given
many reasons for businessmen to make money at the cost of the poor, who are
often seen as “fortune at the bottom of the pyramid.” Previously,
money lenders lent money at higher rates of interest because it was the
individual who was lending money, but now, it is an institution comprising of a
group of individuals who are lending money and in turn, pocketing extra money
from the poor in the name of interest rate.
Conclusion: Microfinance
as an institution that would combine the
strengths of an NGO and that of a financial institution would be beneficial to
a community. But, the reliability factor on such institutions is always
questionable because there is a risk of these institutions becoming like the
regular MFIs which petrify the beneficiaries to repay loans. So, this model
should enable members of a community to have access and control over the
financial resources.
