JooTEY Do PAIsey LO.....micro finance institution

Microfinance is an interesting concept. You lend small risk-bearing money to those at the bottom of the pyramid, less privileged, for whom commercial banks are a no-no; you charge them at varying interest rates (ranging from 150% higher than the prime lending rate all the way to almost 50% lower); and then you wait - wait in the anticipation that these less privileged people will generate a higher income by which they can repay their EMIs. And this works. And it’s been working for centuries (the concept of “sahukars” or village money lenders is not a new one).
2006 Nobel Peace Prize winner, Mohammad Yunus in one of his speeches said that he targeted those people who were rejected by other banks, and decided to make them Grameen’s customers. If you had no assets, no guaranteer, no or very little income, only then would you qualify as a potential customer. An amazing concept, built on the premise of trust. And that’s the thing about microfinance. “Trust” is a highly valued asset in itself. An asset, which doesn’t depreciate, but only appreciates with time.
But there are a few loopholes in this space. I’ve found that a majority of the loan applications we have received so far is for working capital or short term. Someone’s sister is getting married, or someone needs an eye operation, or someone needs to pay daily bills - so he or she takes a small loan. The dire need for money is a frustrating one, and the pressure to repay no matter what the interest - or else be ostracized from the community - is highly strong. When the time comes to shed those monthly EMIs, panic strikes and the next best solution is refinancing. So by the second or third month, we have already woven ourselves into a cobweb of high interest debt and getting out is a struggle.
Untying from this requires a stronger force. Promoting income-generation could be one of them, but this too is contentious. For those in the BOP segment looking to start a new business, a self-help group, or co-operative, microfinancing provides access to money, but to channel this money in a productive manner ie to run a successful profit-making business requires much more. It requires business acumen, venture support, access to training, access to markets. Only 2 out of every 100 new business ideas are successful, and this statistic shines even more brightly in the rural space.
I think the future of microfinance does not lie solely in credit, but instead in a more holistic approach. MFIs need to look beyond and start giving incubation, training and network support. What we need are rural business consultancies, rural financial advisors. Why cant we have a McKinsey, Harvard, or Facebook but for the rural villager? This is not impossible. Granted, it requires a deeper understanding of rural dynamics between the social and political forces existing in the area. And granted, there are practical teething problems. But in order to raise income-levels and make individuals self-dependent, a lot more is needed than access to money. Besides, how will we know unless we try?