NGOs
India
Annapurna
Pariwar
SEWA
Microfinance
Barometer 2017: global trends of the sector...
Microfinance: a dynamic and fast-changing sector
In his editorial, Jean-Luc Perron, vice chairman of Convergences,
gives an overview of a sector with annual growth of over
9% in the global portfolio of loans and the number of active
borrowers. Still, some two billion adults today don't have
access to a financial institution.
Source
Trends
in Microfinance
Microfinance is the practice of providing small scale financial
services to the world's poor, mainly loans and savings and
increasingly other products like insurance and money transfer.
Worldwide there are an estimated 10,000 Micro Finance Institutions,
with charters ranging from non profit NGOs to Credit Unions
and Commercial Banks. The 1,300 MFIs who at the end of 2008
were...
Source
Key
facts abour Microfinance
Microfinance is the supply of loans, savings, insurance
and other basic financial services to low-income households
and microenterprises, often in emerging economies, where
people do not normally have access to normal bank loans.
Most microfinance credit is provided without collateral
and loans are small, usually less than $100.
Source
Microfinance
and Economic Development - World Bank
Microfinance was first trumpeted as a way to unleash the
productive capacities of poor people dependent on self-employment
(e.g., Hulme and Mosley 1996). The idea was straightforward:
microfinance would transform customers’ businesses
by ....
Source
Top
10 Microfinance Institutions in India
Source
Challenges
1. Over-Indebtedness
2. Higher Interest Rates in Comparison to Mainstream Banks
4. Inadequate Investment Validation
5. Lack of Enough Awareness of Financial Services in the
Economy
Regulatory Issues
7. Choice of Appropriate Model
Over-Indebtedness: One of the major challenges faced by
microfinance borrowers in India is over-indebtedness. In
some cases, individuals take loans from multiple microfinance
institutions (MFIs) to repay existing loans, leading to
a debt trap. This situation can result in financial distress
and defaults.
Interest Rates: The interest rates charged by some MFIs
have been a subject of criticism. While microfinance is
intended to be an affordable source of credit for the poor,
high-interest rates can make it difficult for borrowers
to repay loans, leading to a cycle of poverty.
Regulation and Governance: The microfinance sector in India
has faced issues related to regulation and governance. There
have been instances of malpractices by certain MFIs, including
coercive recovery practices and lack of transparency. This
has led to the need for stricter regulation and better governance.
Lack of Financial Literacy: Many microfinance borrowers,
especially in rural areas, lack financial literacy. This
makes it challenging for them to understand the terms and
conditions of the loans, resulting in mismanagement of funds
and potential defaults.
Limited Product Diversification: The microfinance sector
in India has primarily focused on providing credit, with
limited emphasis on other financial products and services.
There is a need for product diversification to address the
diverse financial needs of the poor, such as savings, insurance,
and micro-investment options.
Dependency on Joint Liability Groups (JLGs): Microfinance
institutions often rely on Joint Liability Groups, where
individuals in a group are jointly responsible for the repayment
of loans. However, the effectiveness of this model has been
questioned, and there is a need for exploring alternative
group lending mechanisms.
Sustainability of Microfinance Institutions: Some MFIs
face challenges in achieving financial sustainability. The
social mission of reaching out to the poor sometimes conflicts
with the financial viability of the institutions. Striking
a balance between social impact and financial sustainability
is an ongoing challenge.
Impact Assessment: Assessing the real impact of microfinance
on poverty alleviation is a complex task. While success
stories exist, there is a need for comprehensive and unbiased
impact assessments to understand the effectiveness of microfinance
interventions
External Shocks: Economic and environmental factors, such
as natural disasters and economic downturns, can have a
significant impact on the ability of microfinance borrowers
to repay loans. This vulnerability highlights the need for
risk mitigation strategies.
Technological Challenges: The adoption of technology in
microfinance has been uneven. While some MFIs have embraced
digital tools for operations and transactions, others face
challenges in implementing and adapting to technological
changes, limiting their efficiency. |
