India: Microfinance Struggles but Self Help Groups Seem to Flourish

 Econintersect (by Sanjeev Kulkarni):  Microfinance has come under a preditory cloud. According to the Economic Times:

The stories of lives being changed by a $27 micro loan and picture perfect scenes of smiling women with colorful hand looms, empowered by affordable credit, have been replaced by headlines about borrowers driven to suicide.

Critics say the industry has grown too quickly for its own good, with too much rapaciousness and too little regulation. That has fostered a breakdown in lending discipline, with multiple loans to overextended borrowers, and allowed some unscrupulous players to thrive.

Some say that remarkable growth has prompted a backlash from vested political interests.

But there are other paradigms, such as Self Help Groups, which seem to be out of the clutches of rapacious business interests.

The Indian Government has recognized this fact and the 2011-12 Union Budget has proposed the creation of the women’s Self-Help Groups (SHG) Development Fund with a corpus of Rs 500 crore.

As an example 10,000 SHGs are operational in Pune servicing 200,000  women in Pune.
According to Times Of India report, The 2011-12 Union Budget are likely to bring smiles to these women.

The Pune self groups are mainly run by Pune Muncipal Corporation.

The Government is also mulling to bring the micro finance industry under the banking regulation. This will allow the microfinance industry to tap retail funds which will lower the cost of capital. It is expected that that the regulation and cost of low retail funds will allow access to micro finance funds at lower interest rates.

Sources: The Economic Times and  The Times Of India