Microfinance is touted as the big thing that can alleviate rural poverty. I personally believe, like a lot of others, that it is surely one of the means for the same. It is one of those things which gives us hope. Businessworld has been covering microfinance for a while now and I found a few links. (An interview with the SKS founder, Businessworld - The way ahead). Kudumbashree is one of them which is making waves in this space. There are quite a few others, but some have come under the scanner for unethical practices (Business world - Blood money (must read). For banks, getting a good return from rural areas is quite something, so banks are lending heavily to these MFI’s. Their rural lending targets are being met and there is little danger of losing the money.
Did you know the rate of interest charged by microfinance institutions? I checked with my maid who has enrolled in a similar scheme at her native village in Krishnagiri, TN. Rupees 2 per hundred per month, on an average (2% per month, 24% per year - as much as your credit card). You also have to pay a deposit of about 100 or 200 per month for 3-6 months before you are eligible to take a loan from the SHG (self help group). Now it turns out that many of those (like this maid) enrolled here take loans not because they want it, but because they think they might need it. (For a sudden spike in expenditure etc.) My maid takes an “advance” every now and then from us to pay for her SHG. Microfinance and SHGs are different, but in terms of the end users, I think the difference is [...]

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