Microfinance: Prosperity conductor or obstacle?

Neoliberal minded policy makers began to ramp up commercialization of microfinance to bring capitalism down to the bottom of the socio-economic pyramid.

The campaign of modern microfinance, which started in the 1970s, has gone through many ups and downs and is now on the brink of complete transformation. During this period, its founder Muhammad Yunus (his organization Grameen Bank Bangladesh) also received the 2006 Nobel Prize. Major crises in Bolivia (2000), Morocco (2008), Bangladesh (2008/9), Nicaragua (2009), India (2010) and South Africa (2015) have questioned the role and rationale of microfinance.

By the end of December 2080, there are approximately six million savings members in all 77 districts through 5,126 branches and 20,000 employees of 54 microfinance financial institutions. About 40 percent of the members' savings are being mobilized in the microfinance sector, which is disbursing 450 billion loans through 2.8 million loan members. The ratio of non-performing loans of these institutions with only 10 percent capital fund is about 8 percent.

The Nepal Rural Development Bank established in 2049 with the joint investment of the Government of Nepal and Rashtra Bank is considered to be the beginning of modern microfinance, but its contribution in 30 years cannot be underestimated. Although it is not certain to what extent microfinance has contributed to the fact that the poverty level in Nepal has decreased from 45 percent to 18 percent in 30 years, it must have played a role in some form or the other. Microfinance institutions have reached out to the doorsteps of rural and remote communities to increase financial access from a very low level of around 15 percent to more than 76 percent. Of the total 11,567 branches of 112 banks and financial institutions authorized to conduct financial transactions by the National Bank, the share of microfinance institutions is 44 percent. While the population of branches is 4 thousand 528, if microfinance financial institutions are also counted, it will be 2 thousand 521.

During the 2072 earthquake, natural disaster, and corona epidemic, the continuation of service and providing additional support to extremely poor and difficult places should be appreciated. Microfinance institutions have an important role to play in increasing financial literacy, enhancing the capacity of customer members by imparting financial literacy to the target group through the program and creating capable customers for the mainstream banking system. Almost 100 percent of the 6 million member customers of microfinance are women.

Based on a study in Sudurpaschim Province, it was found that the Women's Empowerment Index increased by 14 percent per year among microfinance clients compared to non-clients during a 5-year period. Now most of the real estates are owned by women, the share of decisions made by women in household work is increasing, women's participation in children's education, health and household shopping and professional decisions can be considered as the basis of empowerment.

Microfinance has been widely criticized for charging exorbitant interest and service charges. For the past three years, the National Bank has made a policy to allow all microfinance institutions to charge a maximum of 15 percent annual interest rate. This is less than the mid-point of 18 for about 12 percent of commercial banks and about 24 percent of the informal sector. Even if we look at the international practice, it is less than the interest rate of 18-23% in India, 24% in Bangladesh, 23-25% in Pakistan, 34% in African countries and 30% in South American countries. But the transparency of the interest rate and the supervision of the regulatory body are still insufficient.

The problems of microfinance

Microfinance, which aims to provide economic and social transformation by providing unsecured loans to the people below the poverty line, has been presented as a debt trap for these communities. This sector is facing crisis due to the anti-microfinance activities that have been going on for a year in Nepal, the deteriorating creditworthiness of the institutions and the worsening financial situation.

Since two years, the return of microfinance has been decreasing significantly, while the overall financial and institutional index is gradually deteriorating. On the one hand, the debtors were unable to pay the loan installments under the burden of excessive debt, and on the other hand, some individuals and groups were incited to not pay the debt in an organizational manner for their own interests. No one could highlight the positive contribution made by microfinance institutions, instead the government, media, governing bodies, political parties and academics only dug into the negative effects of microfinance.

The campaign of modern microfinance, which started in the 1970s, has gone through many ups and downs and is now on the brink of complete transformation. During this period, its founder Muhammad Yunus (his organization Grameen Bank Bangladesh) also received the 2006 Nobel Prize. Major crises in Bolivia (2000), Morocco (2008), Bangladesh (2008/9), Nicaragua (2009), India (2010) and South Africa (2015) have questioned the role and rationale of microfinance.0

The campaign of modern microfinance, which started in the 1970s, has gone through many ups and downs and is now on the brink of complete transformation. During this period, its founder Muhammad Yunus (his organization Grameen Bank Bangladesh) also received the 2006 Nobel Prize. Major crises in Bolivia (2000), Morocco (2008), Bangladesh (2008/9), Nicaragua (2009), India (2010) and South Africa (2015) have questioned the role and rationale of microfinance.1

The campaign of modern microfinance, which started in the 1970s, has gone through many ups and downs and is now on the brink of complete transformation. During this period, its founder Muhammad Yunus (his organization Grameen Bank Bangladesh) also received the 2006 Nobel Prize. Major crises in Bolivia (2000), Morocco (2008), Bangladesh (2008/9), Nicaragua (2009), India (2010) and South Africa (2015) have questioned the role and rationale of microfinance.2

The campaign of modern microfinance, which started in the 1970s, has gone through many ups and downs and is now on the brink of complete transformation. During this period, its founder Muhammad Yunus (his organization Grameen Bank Bangladesh) also received the 2006 Nobel Prize. Major crises in Bolivia (2000), Morocco (2008), Bangladesh (2008/9), Nicaragua (2009), India (2010) and South Africa (2015) have questioned the role and rationale of microfinance.3

The campaign of modern microfinance, which started in the 1970s, has gone through many ups and downs and is now on the brink of complete transformation. During this period, its founder Muhammad Yunus (his organization Grameen Bank Bangladesh) also received the 2006 Nobel Prize. Major crises in Bolivia (2000), Morocco (2008), Bangladesh (2008/9), Nicaragua (2009), India (2010) and South Africa (2015) have questioned the role and rationale of microfinance.4

The campaign of modern microfinance, which started in the 1970s, has gone through many ups and downs and is now on the brink of complete transformation. During this period, its founder Muhammad Yunus (his organization Grameen Bank Bangladesh) also received the 2006 Nobel Prize. Major crises in Bolivia (2000), Morocco (2008), Bangladesh (2008/9), Nicaragua (2009), India (2010) and South Africa (2015) have questioned the role and rationale of microfinance.5

The campaign of modern microfinance, which started in the 1970s, has gone through many ups and downs and is now on the brink of complete transformation. During this period, its founder Muhammad Yunus (his organization Grameen Bank Bangladesh) also received the 2006 Nobel Prize. Major crises in Bolivia (2000), Morocco (2008), Bangladesh (2008/9), Nicaragua (2009), India (2010) and South Africa (2015) have questioned the role and rationale of microfinance.6

The campaign of modern microfinance, which started in the 1970s, has gone through many ups and downs and is now on the brink of complete transformation. During this period, its founder Muhammad Yunus (his organization Grameen Bank Bangladesh) also received the 2006 Nobel Prize. Major crises in Bolivia (2000), Morocco (2008), Bangladesh (2008/9), Nicaragua (2009), India (2010) and South Africa (2015) have questioned the role and rationale of microfinance.7

The campaign of modern microfinance, which started in the 1970s, has gone through many ups and downs and is now on the brink of complete transformation. During this period, its founder Muhammad Yunus (his organization Grameen Bank Bangladesh) also received the 2006 Nobel Prize. Major crises in Bolivia (2000), Morocco (2008), Bangladesh (2008/9), Nicaragua (2009), India (2010) and South Africa (2015) have questioned the role and rationale of microfinance.8

The campaign of modern microfinance, which started in the 1970s, has gone through many ups and downs and is now on the brink of complete transformation. During this period, its founder Muhammad Yunus (his organization Grameen Bank Bangladesh) also received the 2006 Nobel Prize. Major crises in Bolivia (2000), Morocco (2008), Bangladesh (2008/9), Nicaragua (2009), India (2010) and South Africa (2015) have questioned the role and rationale of microfinance.9

By the end of December 2080, there are approximately six million savings members in all 77 districts through 5,126 branches and 20,000 employees of 54 microfinance financial institutions. About 40 percent of the members' savings are being mobilized in the microfinance sector, which is disbursing 450 billion loans through 2.8 million loan members. The ratio of non-performing loans of these institutions with only 10 percent capital fund is about 8 percent. 0

By the end of December 2080, there are approximately six million savings members in all 77 districts through 5,126 branches and 20,000 employees of 54 microfinance financial institutions. About 40 percent of the members' savings are being mobilized in the microfinance sector, which is disbursing 450 billion loans through 2.8 million loan members. The ratio of non-performing loans of these institutions with only 10 percent capital fund is about 8 percent. 1