Over the past few weeks, I have watched in consternation as the malice and hatred inside and towards the MFI industry has spilled onto the streets, and in the media, and the paragons of virtue (the promoters of MFIs) have perceptibly fallen from grace. The drama has all the ingredients that a Bollywood blockbuster requires - the poor looking for messiahs, greedy MFI
promoters, husband-wife battles, politicians hungry for power, red-tape and bureaucrats, billion dollar IPO valuations, the inevitable suicides, and the clamping down. From the glowing and rich praises heaped upon the work of Nobel laureate Md Yunus
of Bangladesh, to a typical corporate-political potboiler is quite a distance travelled by the MFI industry, in South Asia.For any entrepreneur, management student, or a policy-maker, the MFI saga presents an excellent ground for learning.
Before I get into the nitty-gritty of this story, let's run through the basics.
What is the concept of "microfinance
"?
"?
When you lend money to tiny businesses, you are doing 'microfinancing' of those tiny enterprises. A tiny enterprise could be as small as just one individual.
What are MFIs?
What are MFIs?
Imagine the scenario in small villages and towns, when people who have very little steady streams of income want to grow and meet their financial obligations and chase their dreams.. and no established source of credit comes to their rescue. Big banks surely do not. Governments are - generally speaking - tardy enough not to be very effective. So who helps these guys, if at all? It's the Microfinance Institutions (MFIs). These companies (or institutions) extend "loans" to these small guys. So naturally, it all sounds good. The small guy needs small sums, the MFI hands it over to them, and everyone is happy. So, microcredit
is given to many borrowers by microfinance institutions
(MFIs).
Microfinance firms typically give loans to small businesses that have no access to banks and charge an effective rate of 28-32 per cent a year, about double the rate on bank loans. is given to many borrowers by microfinance institutions (MFIs).
