Problem for micro financing falling into dire straits is due to
-Egged by Politicians who consider people as vote banks(a bane of Democracy), the borrowers do not repay.
and
the borrowers lend the money to others not covered by micro finance who can not repay.
As far as the first one is concerned ,even the select groups are hand-picked by politicians for political ends and the those who recommend sanctioning of the amount get a cut.
No body bothers as they know they need not repay, for their party is in power.Even if the opposition were to come back to power, they dare not collect from the defaulters for fear of losing votes.over a period of time those who pay also see the wisdom(?) of not repaying.
Groups as the Self Help Group in Tamil Nadu,India are being promoted vigorously with an eye on the election and in fact many benamis of those in power form a consortium by linking many groups and siphon off money.
The principle of making people depending on State with out working must end as also freebies by the Government.
This will play havoc with the Economy.
Story:
Microcredit was once extolled by world leaders like Bill Clinton andTony Blair as a powerful tool that could help eliminate poverty, through loans as small as $50 to cowherds, basket weavers and other poor people for starting or expanding businesses. But now microloans have met with political hostility in Bangladesh, India, Nicaragua and other developing countries.
In December, the prime minister of Bangladesh, Sheik Hasina Wazed— who had championed microloans alongside Mr. Clinton at talks in Washington in 1997, while Mr. Clinton was president — turned her back on them. She said microlenders were “sucking blood from the poor in the name of poverty alleviation,” and she ordered an investigation into Grameen Bank, which had pioneered microcredit and which, along with its founder, was awarded the Nobel Peace Prize in 2006.
In India, until recently home to the world’s fastest-growing microcredit businesses, lending has slowed sharply since the state with the most microloans adopted a strict law restricting lending. In Nicaragua, Pakistan and Bolivia, activists and politicians have urged borrowers not to repay their loans.
The hostility toward microfinance is a sharp reversal from the praise and good will that politicians, social workers and bankers showered on the sector in the past decade. Philanthropists and investors poured billions of dollars into nonprofit and for-profit microlenders, which were considered vital players in achieving the United Nations’ ambitious Millennium Development Goals for 2015, which world leaders set in 2000. One of the goals was to reduce by half the number of people in extreme poverty.
The attention lavished on microcredit helped the sector reach more than 91 million customers, most of them women, with loans totaling more than $70 billion by the end of 2009. India and Bangladesh account for half of all borrowers.
But as with other trumpeted development initiatives that have promised to lift hundreds of millions from poverty, microcredit has struggled to turn rhetoric into tangible success.
Done right, the loans have shown promise in allowing some borrowers to build sustainable livelihoods. But it has also become clear that the rapid growth of microcredit — in India, some lending companies were growing at 60 percent to 100 percent a year — has made the loans much less effective.
Most borrowers do not appear to be climbing out of poverty, and a sizable minority of them are getting trapped in a spiral of debt, according to studies and analysts.
“Credit is both the source of possibilities and it’s a bond,” said David Roodman, a senior fellow at the Center for Global Development, a research organization in Washington. “Credit is often operating at this knife’s edge, and that gets forgotten.”
And with the results for borrowers mixed, some lenders have minted profits that might make Wall Street bankers envious. For instance, investors in the largest microcredit company in India, SKS Microfinance, sold shares last year for as much as 95 times what had been paid for them a few years earlier.
Meanwhile, politicians in developing nations, some of whom had long resented microlenders as competitors for the hearts and minds of the poor, have taken to depicting lenders as profiteering at the expense of borrowers.
http://www.nytimes.com/2011/01/06/business/global/06micro.html?pagewanted=1&hp
Related:
Norway says it is examining reports that Nobel Peace Laureate Muhammad Yunus allegedly diverted millions of dollars of aid money from a bank.
International Development Minister Erik Solheim said that it was “totally unacceptable that aid is used for other purposes than intended”.
A documentary maker has alleged that cash was diverted from Professor Yunus’ Grameen Bank to other parts of Grameen.http://www.bbc.co.uk/news/world-south-asia-11899506
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