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Microfinance in Microfinance in Crisis in South Crisis in South
Asia: An Asia: An Analysis of Analysis of
Government Government Intervention Intervention
in Andhra in Andhra Pradesh, India Pradesh, India & Bangladesh& Bangladesh
Microfinance in Microfinance in Crisis in South Crisis in South
Asia: An Asia: An Analysis of Analysis of
Government Government Intervention Intervention
in Andhra in Andhra Pradesh, India Pradesh, India & Bangladesh& Bangladesh
Source: http://wikitravel.org/upload/shared/4/4b/Map_of_South_Asia.png
By Jeremy BambergBy Jeremy Bamberg
Source: http://wikitravel.org/upload/shared/4/4b/Map_of_South_Asia.png
By Jeremy BambergBy Jeremy Bamberg
AgendaAgenda
Introduction & Thesis MF In India MF In Bangladesh MF Crisis in A.P October Ordinance RBI & Malegam Committee Grameen & Bangladesh Government
Introduction & Thesis MF In India MF In Bangladesh MF Crisis in A.P October Ordinance RBI & Malegam Committee Grameen & Bangladesh Government
Abbreviations:
MF: Microfinance
A.P: Andhra Pradesh
RBI: Reserve Bank of India
Abbreviations:
MF: Microfinance
A.P: Andhra Pradesh
RBI: Reserve Bank of India
ThesisThesis
As a result of the MF Crisis in both A.P, India and with the Grameen Bank in Bangladesh several myths have become a part of a discourse demonizing MFIs (particularly NBFCs)
These myths need to be analyzed Both the Governments of India and Bangladesh
have begun to gradually encroach on MF- Sector. Certainly the Government needs to develop a role in the sector, but they need to be careful not to favor Government MF models to those of NGOs or NBFC- MFIs (Although this is debatable)
As a result of the MF Crisis in both A.P, India and with the Grameen Bank in Bangladesh several myths have become a part of a discourse demonizing MFIs (particularly NBFCs)
These myths need to be analyzed Both the Governments of India and Bangladesh
have begun to gradually encroach on MF- Sector. Certainly the Government needs to develop a role in the sector, but they need to be careful not to favor Government MF models to those of NGOs or NBFC- MFIs (Although this is debatable)
NBFC: Non- Bank Finance Company
MFI: Microfinance Institution
NBFC: Non- Bank Finance Company
MFI: Microfinance Institution
MF In IndiaMF In India
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Source: Sinha, Frances: State of Microfinance in IndiaSource: Sinha, Frances: State of Microfinance in India
Existing SHG models since 1970’s funded by government
One of largest MF markets in the world due to high population of poor
MFIs are effectively barred by regulation from taking any deposits
Existing SHG models since 1970’s funded by government
One of largest MF markets in the world due to high population of poor
MFIs are effectively barred by regulation from taking any deposits
MF Crisis in A.PMF Crisis in A.P
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Source: Respective WebsitesSource: Respective Websites
Source: Ashta, Arvind: Interest Rate ethics: an aspect of social performance in MicrofinanceSource: Ashta, Arvind: Interest Rate ethics: an aspect of social performance in Microfinance
Source: Sinha, Frances: State of Microfinance in IndiaSource: Sinha, Frances: State of Microfinance in India
Weeding Out The MythsWeeding Out The Myths 1) “Usurious” interest rates
Interest rates of MFIs in India ranged from 28% to 32% annually, which are among lowest rates of microfinance globally (Intellecap, Oct. 15th)
Many interest rates neglect transaction costs and opportunity costs
2) MF causing farmer suicide rates to rise
Link is questionable: “Over 22,000 people have committed suicide in A.P over the past 10 years..” (Intellecap, Oct. 25th)
1) “Usurious” interest rates Interest rates of MFIs in India ranged
from 28% to 32% annually, which are among lowest rates of microfinance globally (Intellecap, Oct. 15th)
Many interest rates neglect transaction costs and opportunity costs
2) MF causing farmer suicide rates to rise
Link is questionable: “Over 22,000 people have committed suicide in A.P over the past 10 years..” (Intellecap, Oct. 25th)
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Source: Mapsof.net: Andhra PradeshSource: Mapsof.net: Andhra Pradesh
October Ordinance: AP ActOctober Ordinance: AP ActOrdinance’s 4 Premises MFIs charge
‘usurious’ interest rates;
If clients fail to pay on time, MFIs use coercive methods to collect the interest;
These practices are frcing the poor to commit suicide;
MFIs make huge profits and have no social mission to help poor
Ordinance’s 4 Premises MFIs charge
‘usurious’ interest rates;
If clients fail to pay on time, MFIs use coercive methods to collect the interest;
These practices are frcing the poor to commit suicide;
MFIs make huge profits and have no social mission to help poor
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Source: The Hindu: Microfinance credit: AP govt may start NBFC with PSUSource: The Hindu: Microfinance credit: AP govt may start NBFC with PSU
RBI & Malegam CommitteeRBI & Malegam Committee Purpose: “To review the
definition and practice of microfinance in India, delineate a regulatory framework, and make related recommendations”
Set minimum capital for NBFC- MFIs at 15 Crore ($3.4 mil.) from previous 2 Crore
With proposed interest caps it becomes extremely difficult to start and run a commercially viable business as an NBFC- MFI
Purpose: “To review the definition and practice of microfinance in India, delineate a regulatory framework, and make related recommendations”
Set minimum capital for NBFC- MFIs at 15 Crore ($3.4 mil.) from previous 2 Crore
With proposed interest caps it becomes extremely difficult to start and run a commercially viable business as an NBFC- MFI
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Source: Intelelcap White Paper: Malegam Committee Recommendations on MF SectorSource: Intelelcap White Paper: Malegam Committee Recommendations on MF Sector
Source: IbidSource: Ibid
Grameen & Bangladesh Government
Grameen & Bangladesh Government
Former Grameen ties with Government
Norwegian Funding
Attempt to form Political party
Leveraging the poor as voters
Age
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Source: http://humanosphere.kplu.org/files/2010/12/4308450701_f042bd9c49_z.jpg
Source: http://humanosphere.kplu.org/files/2010/12/4308450701_f042bd9c49_z.jpg
Works CitedWorks Cited http://www.cgap.org/gm/document-1.9.48945/FN67.pdf Killing microfinance will help moneylenders - Economic Times http://www.microfinancegateway.org/gm/document-1.9.41474/19.pdf http://intellecap.com/assets/83/
First_Update_to_White_Paper_on_Indian_Microfinance_Crisis_2010.pdf http://intellecap.com/assets/89/
Response_to_Malegam_Committee_Reco_Intellecap_White_Paper-February_2011.pdf
http://intellecap.com/assets/87/Malegam_Committee_Report.pdf http://www.responsability.com/domains/responsability_ch/data/free_docs/
Malegam%20Committee%20Report.pdf Elisabeth Rhyne: On Microfinance: Who's to Blame for the Crisis in Andhra
Pradesh? The Lessons of Andhra Pradesh « http://beyondprofit.com/Intellecap%20Microfinance%20White%20Paper
%20(Oct%202010).pdf http://apmas.org/pdf%5Cn.pdf Andhra Pradesh: Crisis or Opportunity? Bangladesh's largest NGO admits role in microfinance crisis Stellungnahme responsAbility zum aktuellen Malegam Bericht Media focus on microfinance in Andhra Pradesh, India http://www.inm.org.bd/saarc/document/India.pdf The Ouster of Muhammad Yunus: Can Politics Destroy Grameen Bank? -
Knowledge@Wharton
http://www.cgap.org/gm/document-1.9.48945/FN67.pdf Killing microfinance will help moneylenders - Economic Times http://www.microfinancegateway.org/gm/document-1.9.41474/19.pdf http://intellecap.com/assets/83/
First_Update_to_White_Paper_on_Indian_Microfinance_Crisis_2010.pdf http://intellecap.com/assets/89/
Response_to_Malegam_Committee_Reco_Intellecap_White_Paper-February_2011.pdf
http://intellecap.com/assets/87/Malegam_Committee_Report.pdf http://www.responsability.com/domains/responsability_ch/data/free_docs/
Malegam%20Committee%20Report.pdf Elisabeth Rhyne: On Microfinance: Who's to Blame for the Crisis in Andhra
Pradesh? The Lessons of Andhra Pradesh « http://beyondprofit.com/Intellecap%20Microfinance%20White%20Paper
%20(Oct%202010).pdf http://apmas.org/pdf%5Cn.pdf Andhra Pradesh: Crisis or Opportunity? Bangladesh's largest NGO admits role in microfinance crisis Stellungnahme responsAbility zum aktuellen Malegam Bericht Media focus on microfinance in Andhra Pradesh, India http://www.inm.org.bd/saarc/document/India.pdf The Ouster of Muhammad Yunus: Can Politics Destroy Grameen Bank? -
Knowledge@Wharton