Govt’s Microfinance Model Promises to Empower Poor

Friday, April 22, 2011

GANDHINAGAR: At a time when controversy surrounding microfinance institutions charging higher-than-usual interest rates from its poor borrowers – mainly womenfolk – refuses to die down in Andhra Pradesh and some other parts of India, Gujarat government claims to have resolved the issue, coming up with a new model envisaging, to quote a document, “a strategic partnership” between large industries and over two lakh state-sponsored self-help groups (SHGs), said to have been formed all over Gujarat.

While there is no independent confirmation of so many SHGs having been created, already, Gujarat government has signed agreement with 32 industrial groups, including Reliance Industries, Tata Motors, Godrej Agrovet Ltd, Arvind Limited and Fab India, who will provide market linkages to lakhs of women taking micro-loan to do small business.

“Several nationalized banks have come forward to provide micro-loan to SHGs at the maximum interest rate of 11 per cent per annum,” a senior official said.

The move comes after sharp criticism of SKS Microfinance of Andhra Pradesh raising IPO funds and giving loan to poor at 28 per cent rate of interest. Nobel laureate Mohammad Yunus, who runs Grameen Bank in Bangladesh, first raised voice against IPO saying the high rate showed SKS was committed to its shareholders rather than the poor, thus negating its purpose – of empowering women. SKS experiment allegedly also led to several farmers’ suicides after they failed to pay back loans.

In fact, officials assert, the state model – called Mission Mangalam – in which big houses will take care of market risk and nationalized banks will provide micro-loan, is all set to outsmart the Bangladesh’s Grameen experiment, too – though being projected as the best in the world.

Source: The Times of India (link opens in a new window)