MFIfailure
From Udaimicrofin
Criticism of Microfinance models
- Bias: The really poor people can do very little with microcredit, owing to the fact that they are mostly ill trained, uneducated and don't have any realistic business opportunities. Providing them with microcredit would simply push them into deeper debt. This is what has happened in Maharashtra and Andhra Pradesh. The poorest people need credit in larger amounts and at more flexible terms, to first provide basic sustenance and then help look at an income-generation source (Dichter 2006)
- Repayment: Repayment is an important concern for any MFI. Quoting Rosenborg, "The borrower’s principal motivation to repay the loan is a desire to keep access to the highly valued loan service in the future. When a client sees neighbors failing to pay, her confidence in the lender’s future viability falls, along with her incentive to repay her own loan." (Rosenborg 2003)
- Agriculture: In India, quite a few microcredit instt. have targeted agriculture with the same equated weekly payment model. It doesn't work because it required huge cash flows in the beginning and any returns happen only after a few months. The repayment time is a lot more than other microenterprises, hence they cannot work on grameen bank model.
- Loss of control: Goetz and Sen Gupta (1995) state that the control over the microcredit given to women for starting a microentreprise, in some countries, is often lost to male relatives.
