Monday, August 22, 2011

Defend the Reputation of Microfinance

Microfinance has taken flight over the last two decades bringing in new development policies and many reasons to celebrate (especially if you are a woman). However, NGOs and small business owners, such as SKS, in India are far from celebrating. Andhra Pradesh, India's microfinance-meca hit crisis today after state legislators passed a law that would regulate microfinance firms.

Critics say that the new law regulation in India could cripple microfinance firms, stating that the collection of dues has already fallen around 10%; but to "backers of the law, it's an attempt to rein back the worst excesses of an industry, which it is claimed, is charging exorbiant interest and is responsible for an increasing number of suicides because of heavy-handed debt collection methods."(Poverty Matters Blog: "Development Panacea or Exorbiant, Ineffective PovertyTrap?")

So, is microfinance really helping community development?

The idea of microfinance, to many, sounded promising as a savior to poor communities looking for poverty reduction, bringing in savings and loans. But, although microfinance (and microcredit) brings in huge support and praise, it also comes with an arsenal of critics who argue that it is being used as a measure of poverty reduction rather than poverty transformation. Some critics even state that small loans are only used for new businesses and not used for poor people themselves who need the money for healthcare and education expenses. (Critics of microfinance would love Milford Bateman's upcoming release Confronting Microfinance.)

This isn't the most pleasant news for small busines owners looking to self-regulate their own business. And, for authors like Chris Corbett who just released his new title Advancing Nonprofit Stewardship Through Self-Regulation - which highlights Independent Sector's 33 Principles of Self-Regulation in an effort to help these small firm owners reach success through integrity and genuine practices - this news couldn't have come at a more inopportune time.

India's news even struck a nerve with Father of Microfinance, Mohammad Yunus who stated that small companies are "misusing" and "abusing" his concepts.

Being a lover or a hater of microfinance has depended on evidence of individual lives who have played a part in this dramatic play.

Do you think microfinance is good for community development? If not, how would you control the rise of poverty?


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