Microfinance is a discredited model, says Jairam Ramesh

New Delhi: Micro-finance is in a “danger zone” and to think that poverty alleviation in India is possible through this “discredited model” is “crap”, Rural Development Minister Jairam Ramesh said today.

“Nothing can stop an idea whose time has gone. And micro-finance is in a danger zone. It is a discredited model. It has raised more questions that it has answered,” the Minister said in his valedictory address at the Micro finance summit here.

[caption id=“attachment_539115” align=“alignleft” width=“380”]  The micro-finance sector of the country had faced a crisis when the Andhra Pradesh government came up with a law to regulate the sector in 2010. PTI[/caption]

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Citing the recent micro-finance crisis in Andhra Pradesh that triggered meltdown, Ramesh said he was among those who believe that micro-finance has promised much more than it has actually delivered, created more problem than actually solved and continue to promise much more than that actually put on the ground.

“One should be somehow more modest in the expectation of micro-finance and micro-finance institutions. To think that we are going alleviate poverty is a tall tall claim. Poverty alleviation through micro-finance-it is crap,” he said.

The micro-finance sector of the country had faced a crisis when the Andhra Pradesh government came up with a law to regulate the sector in 2010.

The law banned micro-finance institutions from collecting weekly loan instalments, doorstep business. Its direction to such institutions to secure government approval before giving a second loan to a borrower affected the sector after banks stopped giving money to them.

Ramesh, however, agreed with the idea of restructuring or rebuilding the model brick by brick. “The objective of micro finance is very clear. It is to provide finance to people who do not have access to finance. And there is no doubt in my mind that there are many advantages when it comes to delivery of finance through the micro finance route,” he said.

Hailing the bank-link self-help groups (SHGs) as India’s contribution to the world of financial inclusion, Ramesh said the fundamental focus in the banking SHG model has been building social capital, community institutions.

The focus has also been on delivery on public services which governments have traditionally failed to do in a satisfactory manner, he said.

PTI