On 29 July 2010 The New York Times reported that one of the world’s largest microfinance organizations, India’s SKS Microfinance, was preparing to launch on the Indian stock market. Whilst not the first, SKS was one of the biggest, and it caused controversy because a US-based non-profit microfinance group invested in SKS, Unitus, had said it would close down its microfinance activities after the launch. Muhammad Yunus, winner of the 2006 Nobel Peace Prize jointly with the microfinance pioneer he co-founded (Grameen Bank), criticized the move as encouraging profit maximisation. The launch ultimately raised around $350m. Besides launching on the stock market, Indian microfinance institutions are also pursuing securitization, with micro-loans being pooled into marketable securities.
A 2010 article by Bipasha Baruah looks at the role of NGOs in microfinance. Baruah acknowledges the success of NGO microfinance in extending credit to financially excluded groups, particularly women, but points to problems of sustainability, with many smaller microfinance NGOs dependent on donor funding and government subsidies, partly because many provide social services such as rights awareness and literacy classes alongside microcredit. Particularly for these less financially focussed NGOs, attempts to provide links for the poor into the formal banking system can serve poverty reduction well, since this offers a much broader range of financial instruments, including savings accounts, which NGOs cannot legally provide. Baruah highlights doubts in the literature about the long-term impact of microcredit on income levels of the poor, whilst noting benefits in consumption smoothing and women’s control over household resources. Studies also show concentration of NGOs in urban and better-developed areas, with less activity in very rural and very poor areas, following a certain market logic which in some cases leads to competition between microfinance NGOs in relatively well-served areas, at the expense of covering areas with greater financial exclusion. Contradictions between financial sustainability and reaching the poorest may also appear, with NGOs in some cases “moving up the poverty scale” to focus on those more able to borrow and repay.
Beyond this, Baruah argues that “the use of microfinance carries implicit neo-liberal assumptions about how development should occur.” She highlights literature showing that borrowers often lack economies of scale, complementary inputs, key skills, or other requirements for succeeding in an often highly competitive marketplace with limited microcredit funds. Uncoordinated access to microcredit can often lead to an overexpansion of particular local industries, limiting the poverty alleviation benefits and making microcredit, in one commentator’s words, “a glorified form of subsistence.” Some NGOs have recognised these problems and attempted to support borrowers with various aspects of enterprise development, including information and training. Some NGOs also organise women to pool their labour or act as unions to demand increased wages and better working conditions, and Baruah suggests pressing for government employment programs to support the poorest, who are often unwilling to seek credit because they lack the other resources needed to use such credit effectively. Baruah concludes that overall microfinance “is firmly embedded within a neo-liberal framework that seeks to increase access to existing financial resources without really challenging the entrenched status quo of unequal power relations between different groups of people,” and that this is precisely why microfinance has enjoyed such great support from governments, NGOs and donor agencies.
Baruah, Bipasha (2010), “NGOs in Microfinance: Learning from the Past, Accepting Limitations, and Moving Forward“, Geography Compass, Volume 4, Issue 8, pages 979–992
Stephanie Strom and Vikas Bajaj, The New York Times, 29 July 2010, “Rich I.P.O. Brings Controversy to SKS Microfinance”
Robin de la Motte
