India’s Microfinance Collapse and Educated Second Rising

microfinanceIndia, considered the epicenter of the developing world Microfinance Institutions (MFIs), is facing a severe crisis. The sources and events leading up to the collapse are unclear. In response, the leaders of microfinance solutions and their employees have found an increased motivation to be sure that every last loan and effort is spent well. These individuals, often attracted to MFIs with the promise of steady work, have found new significance from the phrase “meaningful work”. As they are able to see their communities start to flourish and entrepreneurs start healthy local economies, they are determined to continue the stability and success MFIs have brought to their regions.

With not only the dedication to keep MFI project-funding from drying up, but also the financial resources and experience to ensure success, Grameen Foundation and Grameen Foundation India have teamed up to address the collapse. Their first objective is to work directly with MFIs on their internal organizational structure, training, and leadership. By equipping the MFI staff with additional tools to fulfill their organization’s mission, the Grameen Foundations will help stabilize the heart of the microfinance sector in India. By investing directly in the distribution channels, their efforts can be leveraged from the internal staff outward toward the entrepreneurs receiving funding.

The collapse has been brewing since November, when questions concerning the unusually high profits from microfinance projects in India were analyzed. From unethical business sharks to market in place of mission minded accusations, many of the issues went unresolved. Regulators are now taking on a more serious role to address predatory lending and favoritism within the microfinance sector. The unethical practices have been compared to the predatory financial institution practices in the United States that have been credited with the economic downturn in the US, and consequentially globally. The majority of predatory microfinance practices came out of large banks and lending institutions, while the smaller MFIs appeared to be more resilient.

These unfavorable reports of MFIs have cast a great deal of doubt on the future of microfinance in India. Yet the dedication of field workers and non-profit organizations to restore the mission-minded purpose to small-scale MFIs are fighting back. It would be disappointing to say the least to see small-scale loans with big impacts be revoked due to higher-level negligence and predatory practices. Time will tell whether the social enterprises that sprouted from microfinance loans will survive once the banks have truly fallen.

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