Microfinancing serves to make poor poorer

.....The microfinance movement is suspect because virtually no discussion is made of the rate of profit on the deployed loans. It is implicitly assumed that the rate of profit will be higher than the rate of interest. But this assumption has no basis whatsoever. Rather, it is seen that people in the villages often deposit their savings at low rates of interest of about 5- 7 per cent in fixed deposits with the banks. They would scarcely do so if they could earn more than 30 per cent from the same money by opening a shop or establishing a mini rice mill. It is also seen that the price of many items produced by the poor, such as paper envelopes, candles, buttermilk and vegetables, is falling. The microfinance movement becomes an instrument of expansion of poverty in this background of declining prices and rates of profit. The poor become poorer because they have to pay out a part of their meagre earnings as interest to the banks. Mr. Mohammed unus and Dr Manmohan Singh, both do not talk about the prices of commodities made by the poor.........

Read - FPJ