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