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A cirtique of microfinance- what´s wrong and what´s right (2011)

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A cirtique of microfinance- what´s wrong and what´s right (2011)

  1. 1. A critique of microfinance – what‟s wrong and what‟s right Cranfield January 2011
  2. 2. Is Microfinance - An amazing new tool to rid the world of poverty ? OR Yet another way for international capital to marginalise and profit from the poor ?
  3. 3. What are MF‟s main features ? • Small loans • Only loans – not savings • Short terms, frequent repayments • Mainly for women • Mainly through some form of group • Unsecured • Mainly from specialised MFIs • Very expensive
  4. 4. Are these features „good‟ or „bad‟ ? Each feature has several „faces‟: • It helps MFIs to do „good‟ • It also helps MFIs to „do well‟
  5. 5. Why are MF loans so small ? - because the poor don‟t need big loans - because they might not repay them - because interest rates can be higher
  6. 6. Why don‟t MFIs take savings ? - because the poor cannot save - because MFIs cannot take deposits - because it‟s cheaper to borrow from Citibank, ICICI Bank and SBI
  7. 7. Why short terms and regular repayments ? - because poor people cannot invest for the long term - because poor people are unreliable - because we must get their money when they have it.
  8. 8. Why do MFIs lend only to women ? - because it‟s good to empower them - because women work better in groups - because women are weak and they do what they are told
  9. 9. Why do MFIs work through groups? (Grameen or SHGs) - to empower the poor and build community solidarity - to outsource appraisal and collection, free of charge - to mobilise (fierce) peer repayment pressure
  10. 10. Why is MF done by new specialised institutions ? - because reaching the poor needs social commitment and new skills - because the banks do not want to change their traditional methods - because it‟s much more profitable than banking
  11. 11. Why is MF so expensive ? - because the poor need service on their doorsteps, which is, sadly, very costly - because moneylenders are the only competition - because microcredit is like shampoo sachets - there‟s big money to be made “at the bottom of the pyramid”
  12. 12. Andhra Pradesh – what‟s gone wrong ? • Greedy investors • Foolish bankers • Misguided borrowers • Frustrated bureaucrats • Opportunist politicians • Irresponsible journalists
  13. 13. What‟s going to happen ? • Collapse of the MF industry, insolvency – (not such a big deal for the clients) • Gradual compromise, some slowing down, little learning, wait till next time • Sort out, some well-deserved failures, survivors will learn and progress
  14. 14. How can MF be improved ? • NOT by capping interest rates) • NOT by „financial literacy training‟ • NOT with foreign aid, DFID and so on • NOT by government control
  15. 15. Improvements • Become banks or merge with or sell to banks – take savings • Move to community ownership – MACS… • Encourage „graduation‟, to „grown-up‟ bank accounts • Admit men, stop discrimination • Add real insurance – not merely to protect loan balances
  16. 16. Exaggerated expectations • MF is a short-term, temporary, low quality “band-aid” for poverty • Stop the hype, accept that MF is NOT a panacea for poverty • Would YOU bank with an MFI ?

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