It offered small loans to poor populations, with no financial guarantees required in return. It also ushered in the principle of joint responsibility , which involves solidarity between the members of beneficiary groups. Finally, the program targeted women, who had been traditionally excluded from the financial system.
Though it was a bold gamble, the program was an immediate success. In , the program obtained the status of a banking establishment. The s and s saw the model exported around the world through the intermediaries of NGOs and financial institutions. Soon a full-fledged microfinance industry emerged in developing countries.
The early 21st century marked the international rise of microcredit. While the first microcredit summit took place in Washington in , the G8 outlined the principles of microfinance in , tracing the contours of a new economic sector.
BNP Paribas quickly recognized the revolution that microfinance represented in the global economy. Critiques of microfinance began to emerge in the s. The first cracks appeared in with the Compartamos scandal. Founded in the early s to issue loans to poor Mexican women living outside of urban areas, this former NGO, valued at nearly two billion dollars, received a barrage of criticism including: high interest rates and consumer loans, intimidation of creditors, lack of transparency, and a focus on profits over its social objectives.
Following a series of suicides among borrowers and increased pressure from credit agents, borrowers rose up against the microfinance system, which was buffeted at the time by a wave of criticism from around the world. For these reasons, the contours of microfinance have shifted in recent years.
Management of MFIs is increasingly regulated by the development and standardisation of performance and social impact indicators such as SPI4-Cerise, which aims to streamline social performance evaluations. Traditional financial institutions have also begun to support MFIs to ensure the lasting future of the microfinance model.
Developed countries are also gradually adopting the tools of microfinance within their own economies. Finally, the expansion of microcredit to other financial products and services like savings or insurance tends to reinforce the viability and social vocation of microfinance services.
The concept of inclusive finance refers to this new balance that is driving a virtuous economic cycle. Inclusive finance also relies on new technologies to give the poorest populations access to financial services. He looks like a person who feels most comfortable in a kurta.
The office he sits in used to be a garment factory, with high ceilings and wide doors. His wife redecorated it. When he walks around, junior colleagues think nothing of stopping him to exchange a word about this or that. The businesses these two people run are different too. Their target customers are different. Bandhan focusses primarily on rural West Bengal. Bandhan is based on Asa model—which is comparatively low cost—and Ujjivan follows Grameen model.
Bandhan is older and bigger, and Ujjivan is relatively new and small. Yet, Chandra and Samit often find themselves on the same page in the newspapers these days. They are the new poster boys for the microfinance industry. The reason is simple. While most MFIs have been shrinking their business during the last two years, the outstanding loans of both Bandhan and Ujjivan have grown.
Their recovery rates are still above 95 percent. While bankers and equity investors are shying away from the sector ever since Andhra Pradesh ordered MFIs to suspend operations in the state, both these firms have found it easier to raise funds, importantly equity.
Similarly, Ujjivan raised Rs crore from its existing investors. What makes them click? The reasons reflect the differences inherent in the personalities and organisation. Former chairman of Nabard Yogesh Chand Nanda says he was impressed with the way Bandhan has managed to integrate its social development activities with microfinance. He is now on its board.
The western and southern states of India have attracted the largest number of microfinance loans in the country. JLGs are a group of members who join hands to avail of a bank loan, either individually, or collectively. The loan is provided against a mutual guarantee. Microfinance institutions in India help the poor with funds; and allow the growth and development of small- and mid-sized enterprises in the country.
They play a crucial role; and have successfully managed to bring the unbanked sector into the organized sector in the country. Read more such informative articles under the Academic Article section on our website. You can enroll in our course to boost your preparation; and enhance your chance of selection.
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