27 January, 2021

Some Macro Changes For Microfinance

MFIs are a good idea. But in India, the concept needs tweaking.

Some Macro Changes For Microfinance

The usurious moneylender was well-known, even in colonial times. “The ryot cannot cultivate without borrowing because his crop goes largely to the long-term creditor,” says the Central Banking Enquiry Committee Report of 1929. India’s poor still remain vulnerable: 51.4 per cent of all farmers are excluded from both formal and informal sources of finance. Thirty-one per cent of rural households are indebted, and the average debt per household (NSSO, 2014) is `32,522. This is a result of the interlocking of the credit market with imperfect markets (land, input, output, labour and land-lease markets), a sure pathway to peasant pauperisation. With little access to formal financial institutions, India’s poor end up investing in chit funds and ponzi schemes. Free from regulation, over 30,000 unregistered chit funds have emerged as sources of liquidity. Fraud is frequent. Saradha group agents in West Bengal promised 10 times the investment in 14 years while charging commissions of 15-40 per cent. The company would pay out dues with money obtained from new...



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