Indian MFIs Have Deviated From Idea of Micro Credit: Muhammad Yunus

Friday, February 17, 2012

MUMBAI: Microfinance institutions in India have deviated from the idea of micro credit, Professor Muhammad Yunus, chairman of Yunus Centre and pioneer of micro-credit, has said.

“They (MFIs) moved away from the idea of micro credit. That has created all the problems,” said Yunus, in a media brefing in Mumbai. “MFIs based in Andhra Pradesh have drifted from their mission.

They need to extract and reintroduce themselves to do business. The problem was created because they called themselves micro credit and deviated from the very plan of micro credit,” he said.

The economist from Bangladesh, who created the innovative programme of providing small loans to poor people, especially women, to help eradicate poverty, said that listing of MFIs on the bourses was a wrong move.

“This is a business done with poor people. So you have to do it carefully. Some people found an opportunity in it and went to benefit themselves. When you want to benefit yourself, sky becomes the limit creating the whole problem,” he said.

The business model that was meant to eradicate poverty in the rural segment and help in financial inclusion has undergone a sea change.

The Reserve Bank of India has come out with guidelines to regulate the micro credit sector after Andhra Pradesh government issued an ordinance restricting their activities.

“Policymakers have to be careful while framing guidelines,” Prof Yunus said. SKS Microfinance, the largest MFI in the country, got listed on the stock exchange in 2010. Other MFIs also wanted to list their shares, but the plan was affected due to changes in market conditions.

Addressing private equity investors, Yunus said investors should pool in money for formation of social business fund without looking for any kind of return. “If investors are ready to part with 1-2% of money, then that money could be used to create parallel social fund without looking for a return,” he said.

The government is likely to introduce the Microfinance Bill in the Budget session of Parliament. The bill will make it mandatory for all MFIs to register with RBI.

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