Ramesh finds fault at microfinance model

Union Rural Development Minister Jairam Ramesh remarked that it is not possible to alleviate poverty through microfinance institutions (MFIs).

In his valedictory address at the recently held Micro finance summit, the minister said one should be somehow more modest in the expectation of micro-finance and micro-finance institutions. To think that we are going alleviate poverty is a tall tall claim, he remarked.

According to hime, microfinance is a discredited model and the industry is in a danger zone. Citing the recent micro-finance crisis in Andhra Pradesh that triggered meltdown, Ramesh said he was among those who believe that micro-finance has promised much more than it has actually delivered, created more problem than actually solved and continue to promise much more than that actually put on the ground.

The micro-finance sector of the country had faced a crisis when the Andhra Pradesh government came up with a law to regulate the sector in 2010.

The law banned micro-finance institutions from collecting weekly loan instalments, doorstep business. Its direction to such institutions to secure government approval before giving a second loan to a borrower affected the sector after banks stopped giving money to them.

Ramesh, however, agreed with the idea of restructuring or rebuilding the model brick by brick. The objective of micro finance is very clear. It is to provide finance to people who do not have access to finance. And there is no doubt in my mind that there are many advantages when it comes to delivery of finance through the micro finance route, he said.