By: Sikander Kushwaha
WHEN THE Bangladeshi banker and economistMuhammad Yunus won the Nobel Prize for Peace in 2006, for introducing the Grameen bank or micro financing/crediting system, ‘Micro Credit’ hit the headlines in the media and poverty alleviation became a buzzword.Micro finance refers to a movement that envisions “a world in which many poor and near-poor households, have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance and fund transfers.”
The concept has grown over the past two decades. The United Nations Development Fund for Women identified it as the key strategy to help poor women. The First International Micro Credit Summit was held in 1997 at the World Bank headquarters in Washington DC. The World Bank, United States Agency for International Development (USAID), United Nations Development Programme (UNDP) and Citi Bank became its chief patrons and declared an allocation of special fund for it. Over the years, major commercial banks and multinational corporations like Monsanto, Citi Group and others decided to sponsor it.
However, this type of financing has a darker side too. Very few quantitative studies have been made on the subject, which has been able to prove that micro finance can uplift the lives of the poor. Most of studies are qualitative which tell that more than 90 per cent of the people who receive micro credit are poor and most of them succeed in businesses started with these loans.
Apart from this, micro finance serves not to lift people out of poverty but, assist those near or slightly above the poverty line. Money is given to those people who have a possibility of returning the principle amount. This leads to the fact that lending money to these people is feasible and sustainable, while lending to the poorest of the poor is not.
Further, this project has been running in Bangladesh for about 30 years now, via the Grameen bank. However, the country is still counted amongst poor countries and has not had any significant change.
Moreover, the interest rates charged by micro financing institutions are usurious and raise moral questions as micro finance institutions live "off the backs of the poor." It is the intermediaries -- commercial banks and loan facilitators - that gain the most from the spread between the cost of funds for the intermediaries and the loan interest charged by them. If the system lands in the hands of the corrupt the poor would be trapped in a vicious circle of debt.
Micro finance has now, become a weapon for multi national companies to sell their products, by collaborating with such institutions. This in turn, is destroying the spirit of micro credit. For instance: Recently a mobile phone manufacturer offered a micro financing scheme on a pilot basis in Andhra Pradesh and Karnataka, to sell their handset to the poorest. Under this project, the company was offering an easy payment scheme of Rs 100 per week over a period of time.
Arnab Mukherji, a researcher at the Indian Institute of Management in Bangalore said,“We’ve seen a major mission drift in micro finance, from being a social agency first, to being primarily a lending agency that wants to maximise its profit.”
So, although the option had started with the spirit of poverty alleviation mission, it has now been reduced to a money making tactic for MNCs.
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