it is easily accessible, for poor of rural India to get loan from micro finance institution .But at how much cost? It is horrible to know that many institutions are charging interest rate more than the money lenders & they are sucking the blood of poor. Even Some institutions are using the way of threatening to beneficiaries for recovery of dues.
In India three types of Microfinance institution works in which “Grameen model” is very famous,this was structured by Nobel awardee ‘Muhammad Yunus’ of Bangladesh. According to “Microfinance Institution Network (MFIN) which is the joint organization of 40 MFIs, it is revealed that present loan outstanding is approx 30k crores. So think how big business world of these institutions are expanding? Recently S.K.S. microfinance having the tag of largest microfinance institution in India has launched India’s first IPO of this sector, which attracted the business world towards success of microfinance market. These institutions are formed with aim to eradication of poverty. But recently Andhra Pradesh registered 57 cases of suicide and Orissa have seen such numerous cases too, because companies are indulge in coercive methods of loan recovery. Much organization has resisted on the issue of charging the interest by MFIs. As in south BJP leader Venkaiah Naidu and other social activists demanded action from government against such MFIs which resort to arm twisting in recovery of loans from poor farmers. High court of A.P. has given order to MFIs, to make changes in loan recovery processes. Generally these institutions projects fair image in front of society writing their vision and mission statement as -“To eradicate poverty and to become poor friendly”. But the ground reality is different from it. Institutions are profiteering their self by lending poor at interest rate as steep as money lenders.
Algebra of microfinance is hard to understand even for an educated person, so think how an illiterate poor farmer could undergo through these tough calculations? And this makes the task of MFIs easy to mold them towards taking loan. We can understand the whole process of lending and charging rate as- institutions quote to charge 16% to 18%,on flat interest basis, From the out-side it looks very attractive but inside story is different, as we go in deep ,we will find that there is a catch. This flat rate of interest means it would not be calculated on declining balance as in other commercial banks ,which means although borrower has paid some dues ,interest would be calculated still on initial sum borrowed and not on balance loan amount. Which comes with flying colors for MFIs in form of 40%to 50% minimum of hidden interest rate including service and insurance charges and this generates profit for that institution? Important point to make concern that these rates for that poor who manage their one time meal any how. At the time of lending the loan to poor, agents of MFIs expresses it in monetary terms which seem to be very less to poors, but at the time of repayment they come to know that its like forfeited, because they have taken loan from that MFIs.
As a result of failure of regional rural banks in providing adequate amount of loans, villagers are approaching MFIs and they are exploiting the situation. For this Government of India should make efforts to open banks in panchayats and open account for all villagers.Gov of India should include restriction on interest rates in forthcoming microfinance bill then only original objective to eradicate poverty could be attained.
