Ever since microcredit first began to capture public attention 25 years ago, the usual story line has been that it is a tool of extraordinary power to lift poor people--especially women--out of poverty, by funding their microenterprises and raising their incomes.
A person is considered to be in poverty when their daily income is less than two dollars, the amount of money needed to buy the basic foodstuffs for a healthy and productive life. Last month, the Planning Commission reported that Pakistan’s poverty rate had jumped from 23.9 percent over the last three years to a staggering 37.5 percent. In other words, more than 60 million Pakistani barely earn enough money to feed themselves.
Some time ago, I was approached by subsistence farmers from Bahawalpur.
These were farmers who owned five acres of land or less, though most of the families in their area cultivated no more than an acre or two. They were some of the nearly 40 percent of Pakistani struggling to stay above the poverty line. And they had an incredible story to tell of the manner in which already impoverished farming communities were being forced into cyclical debt at the hands of poverty- alleviation and microcredit organisations.
MUMBAI: Even as many top-rated corporates are struggling to grow and have seen their borrowing costs go up by 300-400 basis points (bps) during the
credit crunch, microfinance major SKS Microfinance has said that borrowing costs rose at a much slower rate — by 100-150 bps. The NGO-turned NBFC, which still sees huge opportunities for itself is diversifying its product range, is looking at infusing Rs 250 crore over the next six months.
Speaking to ET, SKS Microfinance chief finance officer Dilli Raj said, “Our incremental cost of borrowing has gone up to 12.5% from 11.5% two months ago.” This is significant, as banks themselves were starved of funds until a few weeks ago and were lending at about to 300-400 bps above their regular lending rates to even top-rated corporates. Even some smaller microfinance institutions have not found it easy to raise cheap funds. SKS has been borrowing funds from Citi, ABN Amro, ICICI Bank, HDFC Bank in addition to a few public sector banks.
In June 2005, Cordaid invited me to speak at its Year of Microcredit Congress in Soesterberg, Netherlands. I was asked to speak about Business Development Services as they pertain to Micro Finance Institutions (MFIs) - that is, how to improve the performance of MFIs through changes in their management practices.
Much to the chagrin of most of the nice folk in attendance (and the not-so-secret satisfaction of my sponsor), I made a comparison of MFIs to SMEs, based on the fact that the needs exhibited by most MFIs are very similar to SME needs (see what is an SME?). The reaction from the crowd was sufficiently violent that I briefly considered aborting the presentation, but the support from my sponsor was enough for me to press on.
