Monday, July 28, 2008

Micro-finance growing the fastest in the East (India)

Chennai-based Centre for Micro Finance (CMF) has said the micro-finance sector is growing at the rate of 82% in the eastern part of the country, the fastest rate in India.
Also, there exist a great disparity in the penetration of micro finance within the region, with Orissa and West Bengal witnessing high levels of penetration, and states like Assam, Bihar and and Jharkhand lagging behind.
A proposed Micro Finance Bill 2007 is yet to be passed by the Parliament as there is no consensus on several issues. Most notable being on limiting the interest rate charged by the micro-finance companies. The article also talks about this.
Speaking at a seminar on micro credit organised by the Confederation of Indian Industries (CII), Abhijit Banerjee of Massachusetts Institute of Technology (MIT), said "Putting a ceiling on the rate of interest charged by the micro finance institution would not be a good idea, more so on this juncture when the economy is passing through a high inflationary regime."

According to him, "One should look for a couple of years before putting a cap on the lending rates, with the increase in competition the interest rate might even moderate. Moreover, in the current inflationary situation, it would become all the more difficult for these MFIs to sustain".


Generally a borrower repaid the loan weekly and so for a annual loan of Rs 5000, a collection officer had to visit 52 times, pushing up the transaction cost per loan.

"Hence the interest rate is higher," he explained.

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