India’s microfinance institutions are struggling for survival. Here’s why.
Four summers back, the plain-speaking Reserve Bank of India deputy governor KC Chakrabarty declared in a Kolkata conference that micro lenders may become irrelevant if banks turn efficient. Come 2017, with four of the 10 largest microfinance companies turning into small banks, and the second largest— Bharat Financial Inclusion— set to dissolve into IndusInd Bank, Chakrabarty’s words are turning out to be prophetic.
Two decades after India-born American citizen Vikram Akula founded SKS Microfinance, which was rechristened as Bharat Financial, the industry that delivered livelihood to millions of poor is facing its pincer moment with private banks giving a big push to micro lending.
The business model — propounded by Nobel laureate Mohammad Yunus and successfully implemented in India by Akula and Chandra Shekhar Ghosh — still remains profitable, but the vagaries of regulations and populist politics like farm loan waivers keep them on the edge.
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