MFIs need to be fiercely reviewed for poor people’s benefit

Micro finance institutions are the entities who deal small loans to support poor people in the developing countries. They serve the loan seekers at the locations where banks normally lack service. While institutions participating in microfinance most often provide lending small amount as loans. Microfinance allows people to take on reasonable small business loans or for domestic procurements.

Although they exist all around the world, the majority of micro-financing operations occur in developing nations, such as Bangladesh, Cambodia, India, Afghanistan, Democratic Republic of Congo, Indonesia, Ecuador, Nepal and many countries.

Microfinancing organizations support a large number of activities, ranging from providing the basics – like bank checking and saving accounts – to startup capital for small business entrepreneurs and educational programmes that teach the principles of investing. These programs can focus on such skills as bookkeeping, cash-flow management, and technical or professional skills, like accounting.

Proponents of microfinance often claim that such access will help poor people out of poverty.So as, for many, microfinance is a way to promote economic development, employment and growth through the support of micro-entrepreneurs and small businesses; for others it is a way for the poor to manage their finances more effectively and take advantage of economic opportunities while managing the risks.

Credit for the development and wider practice of microcredit in in the South Asian countries goes to Prof. Muhammad Yunus from Bangladesh who started the microcredit movement in 1970s. He had received Noble Prize for economics in 2006 for founding the Grameen Bank and pioneering the concepts of microcredit and microfinance. 

As an economist, he recognised that traditional banking systems in Bangladesh were not providing credit access to the poor. He established the Grameen Bank in 1983 to alleviate poverty.

This model, with its collateral-free and group-based lending system for the poor, became popular worldwide for poverty reduction.  This was adopted in Nepal in the early 1990s to reduce poverty and provide access to financial services for the unbanked people.

According to Nepal Rastra Bank, there are 64 microfinance institutions (MFIs) in Nepal. These are classified as D class financial institutions, and are regulated by the Nepal Rastra Bank.

Although microfinance has been taken as a tool for financial inclusion and poverty reduction, the users are finding these MFIs giving much pain to them.

The sufferers are now taking the issues at street these days. They want the Government to interfere and facilitate for justifiable solutions. The sufferers accuse that MFIs have forgotten the prime objective and their social mission of empowering the marginalised and poor people. They are turned for only profiting.

Moreover, due to very high rate of interest, the principal and amount of added interest turned a big burden to the borrowers to have mental sickness and also capturing of collaterated properties by the lending institutions. To avoid meeting MFI representative at home, some borrowers had disappeared from their localities also.

To address such issues and steer the microfinance sector in the right direction, regulatory authorities must take immediate corrective measures.

A struggle committee under the leadership of Maniram Gyawali has been formed to deal with the government authorities to solve the problems and ease out burdens of the borrowers.

The committee had issued a demand note. According to the note, loans flown by MFIs in an unjustifiable manner caused financial and social disparities to the borrowers. So that such institutions should be turned invalid. The government should restructure in government involvement to make poor people friendly financial institution b forming commissions at local levels to federal level. The experts engaged at the proposed commission should take responsibilities on imparting financial knowledge to poor and down trodden people, vocational literacy, skill training. The proposed commission support find markets to the products as the community will have to be involved in production oriented activities mandatorily. The trained members should be enrolled in short term, mid term and long term programmes set by the commission. Funds allocated Government to support poor, down trodden people and farmers should bring into direct investment as unified partnership. Emphasize developing pocket areas at local levels to provincial levels with short term, mid term and long term programmes. All programmes to be made self-responsible and added effective monitory and evaluation measures. Professional insurance should be made mandatory. The trained member should get investment facilities at zero interest rate with term to pay back 10 per cent of principal in 3 to 12 months. No middlemen as traders or brokers should be allowed.

Moreover, the demand adds, the MFIs should refund the collected membership fee for last 30 years which is said to be non-refundable. Return the service charge collected 2 to 3 times in a year for renewal of credit. Return unreasonable fees, first instalment at the time of loan flow and multiple interests. Return the interest and other fees on the borrowers’ money involved in the loans such as 20 per cent of the amount is normally belongs to the borrower. The Federal Government and concerned MFI should make arrangement to return 30 per cent 50 per cent respectively. Other than borrowers, the members who had saving deposit should get their money back. (By R. P. Narayan)