Interesting personal experience article by Jitin Mitra on the status and impact of microfinance in India.
As a result of the microfinance crisis in India, there has been a significant decline in the availability of microloans for poor Indian workers. While certain politicians gloat that they are protecting poor borrowers, Jitin notes that “the reality is that millions of poor families have been forced back to traditional money lenders who have been far less beneficial, often charging over 50% interest and claiming collateral following defaults.” And, when poor families pay higher interest rates to moneylenders, this reduces their (already meager) disposable income. While mothers often take the brunt of the impact by reducing their own consumption (e.g. fewer/smaller meals per day), inevitably their children are also impacted.
Also what’s so often overlooked in an evaluation of microcredit is the empowerment benefits provided to most women borrowers. Jitin notes that “[Microcredit borrowers’] confidence had soared as they were now able to provide for their families and in turn, gained respect within their communities.” If we care about social justice and equal opportunity, well-managed microcredit is one of the most powerful tools that has demonstrated empowerment benefit at scale.
Jitin also reminds us of a recent study commissioned by the Small Industries Development Bank of India (SIDBI), an independent financial institution aimed to aid the growth and development of micro, small and medium-scale enterprises in India. It showed that borrowers benefitted significantly from microfinance. Amongst the findings were that:
- 76% were able to increase their income through MFI assistance
- 66% improved their food consumption
- 56% could improve their housing conditions
- 77% could provide better educational facilities