History Of Microfinance

Abstract: In this paper we will be trying to find the origin of microfinance. Mainly after the 1970s, some personal attempts had been made to build microfinance institutions, like A I!", #rameen $ank etc.

$efore that, se%eral institutions had been working in many countries but the effect was too small. &o we will mainly concentrate on the post 1970 era. In the late 1970s the concept of microfinance had e%ol%ed. Although, microfinance ha%e a long history from the beginning of the '0th century we will concentrate mainly on the period after 19(0. Many credit groups ha%e been operating in many countries for se%eral years, for e)ample, the *chit funds* + India,, tontines* + -est Africa,, *susus* +#hana,, *pasanaku* +$oli%ia, etc. $esides, many formal sa%ing and credit institutions ha%e been working for a long time throughout the world. .uring the early and mid 1990s %arious credit institutions had been formed in /urope by some organi0ed poor people from both the rural and urban areas. 1hese institutions were named redit 2nions, 3eople4s $ank etc. 1he main aim of these institutions were to pro%ide easy access to credit to the poor people who were neglected by the big financial institutions and banks. In the early 1970s, few e)perimental programs had started in $angladesh, $ra0il and some other countries. 1he poor people had been gi%en some small loans to in%est in micro5business. 1his kind of microcredit was gi%en on the basis of solidarity group lending, that is, each and e%ery member of that group guaranteed the repayment of the loan of all the members. Many banks and financial institutions has been pioneering the microfinance program after 1970. 1hese are listed below.

ACCION International:

1his institution had been established by a law student of 6atin America to help the poor people residing in the rural and urban areas of the 6atin American countries. 1oday, in '007, it is one of the most important microfinance institutions of the world. It4s network of lending partner comprises not only 6atin America but also 2& and Africa.

SEWA Bank:

In 1978, the &elf /mployed -omen4s Association +&/-A, of #u9arat +in India, formed a bank, named as Mahila &/-A ooperati%e $ank, to access certain financial ser%ices easily. Almost : thousand women contributed their share capital to form the bank. 1oday the number of the &/-A $ank4s acti%e client is more than 80,000.

Grameen Bank:

#rameen $ank +$angladesh, was formed by the "obel 3eace 3ri0e +'00(, winner .r Muhammad ;ounus in 1978. 1his bank is now ser%ing almost :00,0000 poor people of $angladesh. "ot only that, but also the success of

#rameen $ank has stimulated the formation of other se%eral microfinance institutions like, A&A, $<A 3roshika ..

and

By NUPUR ACHARYA and BIJOU GEORGE

M2M$AI 55 India4s central bank -ednesday allowed a special rela)ation to banks in restructuring loans to microlenders, a mo%e that will gi%e lenders temporary fle)ibility in pro%iding credit support to the cash5strapped institutions. 1he country4s microfinance institutions, mostly operating in the southern state of Andhra 3radesh, are facing se%ere repayment problems after the pro%incial go%ernment took steps to regulate lending practices following allegations that M=Is charged small borrowers high interest rates and, in some cases, were o%erly aggressi%e in collections. >iew =ull Image

A=3?#etty Images !fficials from Indian organisation &@& Microfinance recei%ed payments from borrowers in a %illage near Ahmedabad on Aanuary (, '011.

1he <eser%e $ank of India terms the repayment problem as one due to en%ironmental factors and not because of credit weakness. *It has been decided that the special regulatory asset classification benefit could be e)tended to restructured M=I accounts, which are standard at the time of restructuring, e%en if they are not fully secured,* the central bank notification said. $anks can restructure unsecured loans of M=Is without classifying them as sub5standard or bad, according to the notification. 2nder <$I rules, banks ha%e to keep aside a larger portion of cash against bad loans. 1he news sent shares of &@& Microfinance 6td., the only listed M=I in India, to 9ump (.1B to hit a day4s high of (90.( rupees +C1D.',. $anks can restructure the microlender loans up to March 81 and all banks that are financing M=Is should come together and decide the ne)t course of action, the <$I said. *It is a %ery positi%e mo%e, which will enable M=Is to carry out work unabated, at least outside Andhra 3radesh,* >i9ay Maha9an, president of representati%e body, Microfinance Institutions "etwork, told .ow Aones "ewswires. A deadlock between M=Is and the Andhra 3radesh go%ernment continues without any impro%ement, he said. Ee e)pects about D0 billion rupees to 70 billion rupees worth of microfinance loans to come up for restructuring. M=Is borrow from banks and offer small loans of about C100 each to borrowers without collateral. <epayments are usually on a weekly basis. Mr. Maha9an said the sector should be back on track in two to three months. 1he <$I said the rela)ation e)tended to banks is intended to be an interim measure until the committee55set up by the central bank in late '010 to study microlending55submits its report. 1he committee, headed by ;.E. Malegam, is to suggest long term and structural changes in the functioning of M=Is in India. /arlier in the day, <$I .eputy #o%ernor @. . hakrabarty said the committee is e)pected to submit its report soon.

What's New > India: Microfinance and Its Emerging Challenges

India: Microfinance and Its Emerging Challenges

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by: Archana Prasad
January ! "#

tags: economy$ neoliberalism$ microfinance$ India

%riginal source: Peo&le's 'emocracy (he recent debate on the rise and regulation of Micro )inance Institutions *M)Is+ has &ut the focus s,uarely on the neo-liberal model of microfinance$ being followed by the go.ernment since the beginning of the economic reforms/ (he early 00#s saw the emergence of microfinance as a ma1or strategy of &o.erty alle.iation by the neo-liberal state$ es&ecially in the wa2e of the reduction of &ublic s&ending on welfare &rograms/ (he formation of self-hel& grou&s *345s+ and their lin2s with ban2s and go.ernment schemes was seen as a way of offsetting the &roblems of the limited outreach and of mobili6ing ca&ital for self-em&loyment and other income generation &rograms/ Many of these schemes targeted &oor women$ who were largely de&endent on the informal sector credit from moneylenders/ (hus the self-hel& grou&s formed under the ban2 lin2age &rogram attracted many women and more than 7# &er cent of the ban2 and go.ernment lin2ed grou&s were formed by women/ Perspectives on the SHGs It was for this reason that the democratic mo.ement and its organi6ations were not only forced to ta2e this de.elo&ment seriously$ but also de.elo& their own &ers&ecti.e on 345 formation$ while recogni6ing the limitation of the neo-liberal model of microfinance/ (he main criti,ue of the neo-liberal model was built around the fact that it was largely designed to mobili6e the sa.ings of the &oor for &ro.iding li,uidity to ban2s and also for mobili6ing the sa.ings for selfem&loyment &rograms in which the go.ernment had started to in.est less and less money/ In this situation$ the formation of the 345s was becoming a way of absol.ing the state of its own res&onsibility towards &o.erty alle.iation &rograms/ At the same time$ many communal organi6ations and &rofit see2ing commercial enter&rises had also started to use these 345s for their own narrow ends/ In star2 contrast to this$ the alternati.e &ers&ecti.e of the 8eft led go.ernments saw the 345s as a way of increasing the outreach of the go.ernment as well as channelling the go.ernment funds to the &eo&le/ )or e9am&le$ the :utumbashree$ neighborhood micro-credit &rogram of the :erala go.ernment$ lin2ed the &anchayat de.elo&ment with the organi6ation and li.elihood security of women/ In West ;engal too$ 345s were gi.en loans at subsidi6ed$ low interest rates$ and they also recei.ed ade,uate training and mar2eting su&&ort/ (his showed that the democratic mo.ement<s model of 345s was concentrated on the democrati6ation of go.ernance rather than on the withdrawal of go.ernment su&&ort/ ;y the same measure$ democratic organi6ations wor2ing for women<s rights saw the formation of 345s *for instance$ MA8A= federation in (amilnadu+ as &ro.iding a window of o&&ortunity to mobili6e women on social$ economic and &olitical issues/ Roots of the Rise of MFIs

(he recent rise and growth of micro finance institutions has only made such 345s all the more .ulnerable in the &resent scenario of economic distress/ According to the 3tate of the Microfinance 3ector re&ort of the ACCE33 alliance$ the M)I o&erations e9&anded by > times in four years to end the year "##0 at =s 7/0 billion *?"/@ billion+ in outstanding loans/ %f its "@/@ million borrowers$ &oor women and disad.antaged sections form one of the largest sections of the clientele/ Whereas there was only one for-&rofit M)I in the country in the middle of the 00#s$ this number had s&iraled to A0 registered micro finance institutions by "##0/ %f these$ about &er cent of the large micro finance com&anies had a dis&ro&ortionally larger share in the credit mar2et$ ha.ing !" &ercent of the clients and controlling about !! &er cent of the loan &ortfolio/ (his re.eals the emergence of new cor&orate entities and &ri.ate finance com&anies who ha.e started to e9&loit the credit needs of the &oor by charging high interest rates/ An in.estigation by a re&ort from the 'own to Earth maga6ine in Andhra Pradesh re.ealed that whereas ban2 lin2ed self-hel& grou&s were charging interest rates of about B &ercent from their borrowers$ the interest rates charged by the M)Is were at about @# &er cent/ (his clearly showed that a s&ace had been created for e9&loitati.e financial intermediaries for entering the rural and urban credit mar2ets/ (hat this &henomenon was lin2ed to the refusal of &ublic sector ban2s and the state to e9tend the outreach of its formal credit infrastructure is e.ident from the fact that most of the M)Is are concentrated in the "B@ districts where the &oor ha.e a demand for credit$ but the formal ban2ing system is not able to meet this demand/ %f this Andhra Pradesh and :arnata2a ha.e the greatest density of micro finance institutions$ and more than B# &ercent of the outstanding loans are in the southern states/ (his meteoric rise of the M)Is has its roots in the liberali6ation of the ban2ing system and its failure to meet the demands of the rural &oor$ es&ecially women/ Initially the M)Is were started in res&onse to the &rogram of financial inclusion/ (he 345-ban2 lin2age &rogram was started by the National ;an2 for Agriculture and =ural 'e.elo&ment *NA;A='+ where non-go.ernment organi6ations *N5%s+ and not-for-&rofit institutions &layed an intermediary role in &romoting and facilitating the lin2 between self-hel& grou&s and ban2s/ (hus many M)Is started as notfor-&rofit N5%s and then began to e9&and their o&erations to ma2e direct contact with the clients/ (hus 3:3 Microfinance *which is the largest M)I in the country today+ started as a notfor-&rofit institution and con.erted itself into a non-ban2ing financial com&any in "##A/ 3imilarly$ 3am&dana$ another of the M)I giants$ started with B## clients and increased its clientele to about > la2h *>##$###+ in the &eriod between 00! and "##A when it became another for-&rofit com&any/ (his con.ersion of not-for-&rofit institutions into M)Is was a result of a state &olicy that increasingly facilitated the &enetration of big &ri.ate ca&ital in this sector/ International institutions li2e the World ;an2 su&&orted the funders of the M)Is li2e ;asi9 and the N5%s li2e P=A'AN and 3EWA in order to facilitate the demise of &ublic sector ban2ing/ Wea ness of the !eoli"eral Model 3uch &olicies only e9&osed the wea2ness and inability of the current go.ernment and ban2 dri.en &rograms to meet these challenges/ Women &artici&ating in the ban2 lin2age &rogram

faced difficulties in getting access to ban2 credit des&ite the fact that it is they who had formed the 345s/ (hus around one la2h 345s under the ban2 lin2age scheme are yet to be credit lin2ed e.en though they ha.e formed the grou& under the lin2age scheme/ )urther$ the ban2 lin2age scheme itself o&erates in two ways: first where the 345s are su&&orted directly through the ban2s on the one hand and$ second$ where ban2s lend to the M)Is for onward lending to the 345s/ (hey belie.e that this will only increase their outreach/ ;ut it is &recisely this strategy which has also created the s&ace for a re&lacement of the ban2s with the M)Is in some regions/ (hus NA;A='<s own re&ort on the 3tatus of Microfinance$ "##0-"# # shows that while the rate of growth of direct ban2 su&&ort to the M)Is went u& by !/ &ercent during the last year$ direct su&&ort to the 345s only went u& by around si9 &ercent/ (his shows that the ban2s found it easier to gi.e bul2 loans to the M)Is rather than strengthen their direct lin2s with the 345s/ )urther$ the ACCE33 alliance re&ort shows that the o&eration of the M)Is e9&anded by !> &ercent in the last two years whereas the e9&ansion of ban2ing o&erations was only half that rate/ (his shows that the roots of rise of the M)Is lie in the slow growth of &ublic sector ban2ing and their reluctant and tenuous lin2s with the 345s/ (he second im&ortant factor that led to the rise of the M)Is was the failure of the &o.erty alle.iation &rograms that relied on the 345s as the main mobili6ation strategy/ (he Andhra e9am&le is well 2nown in this regard/ 4ere the withdrawal of low interest rate based selfem&loyment &rograms has led to the increasing o&eration of the M)Is/ )urther$ in go.ernmental schemes li2e the 353C or the Drban 3elf-Em&loyment 3chemes$ subsidies were lin2ed to the ability of the 345s to get loans from ban2s/ (he design of many of these schemes was such that a&&licants had to get their loans sanctioned before they could a.ail of e.en the inade,uate and reduced subsidy *which in most cases did not e9ceed >B &er cent of the entire &ro1ect+/ (his was accom&anied by inade,uate infrastructural$ training and mar2eting su&&ort for such em&loyment o&&ortunities/ (hus$ e.en though many of these schemes were targeted at the &oorest of the &oor *those below the &o.erty line+$ the rural and urban &oor were not able to a.ail of these schemes ade,uately/ )or e9am&le$ the go.ernment of 'elhi was able to ma2e only about B## 345s and train >$### women in one decade of its 3hahri 3waro6gar Co1ana/ (hus$ along with other macro economic factors$ the failure to &ro.ide wor2 to the rural and urban &oor also made them more and more .ulnerable to the M)Is as well as informal sources of credit to meet their daily needs/ !eed to Resist the C#rrent $rend (he &ressure being a&&lied by the M)Is to resist the regulation should be seen in this conte9t/ (heir &olitical influence is reflected in the fact that the Andhra Pradesh Micro )inance Institutions *=egulation of Money 8ending+ Act *&assed in 'ecember "# #+ has no ca&s on interest rates/ (his once again shows that the go.ernment is willing to let the micro finance institutions do business as usual and mani&ulate the urban and rural &oor for ma9imi6ing their &rofits/ Needless to say$ this trend needs to be countered and lin2ed to the larger fight against neo-liberal &olicies and the increased social security for the urban and rural &oor/ (he democratic mo.ement has been raising demands based on their e9&erience with women<s 345s and the go.ernment &rograms of the 8eft ruled states/ It recogni6es that the M)Is can

only be countered if the go.ernment su&&orts the 345s through increased subsidies and low interest credits/ (he direct lin2s of &ublic sector ban2s with rural and urban &oor and their 345s need to be strengthened by e9&ansion of the ban2ing infrastructure and &ro.isioning of low interest rate credit at a re&ayment rate of four &ercent/ In such cases$ the go.ernment may re,uire to &ro.ide interest subsidies to these grou&s/ ;ut along with this$ &olitical mobili6ation for the regulation of the M)Is needs to be strengthened/ )or-&rofit N5%s and M)Is need to be sto&&ed from e9&anding their o&erations in this sector on an urgent basis/ It is no sur&rise that the finance minister has already stated that the go.ernment does not want to Estrangulate< the micro finance sector/ (he intention of the go.ernment is thus clear and large scale &olitical mobili6ation is urgently re,uired to sto& its de.ious and anti-&eo&le design

Microfinance, India's sub-prime crisis

VIVEK KULKA !I MFIs were in a hurry to grow and lend, thanks to their private equity investors.

Imagine that your maid borrowed <s 80,000 from you, promising to repay within a year from her monthly wage of <s :,000. .o you think you could cut <s ',D00 from her monthly wages, e%ery monthF =irst of all, do you e)pect her to repay anythingF -ould you charge any interest on your lendingF Most likely, you might write off the entire amount, considering her child4s education and husband4s health problems. Microfinance Institutions +M=I, are in a similar situation. According to the #o%ernment of Andhra 3radesh, more than <s 'D,000 crore has been lent to o%er 70 lakh poor families. !n an a%erage each family owes <s 80,000. Most M=Is charge '7 per cent interest on loans. &ome M=Is seem to use strong5arm tactics in loan reco%ery, with a few reported suicides. 1he Andhra 3radesh #o%ernment reacted with an ordinance to regulate M=Is. Most likely, the M=Is might be forced to write off a big chunk. E!- I1 2"<A>/66/. =irst, M=Is were in a hurry to grow fast. &@& Microfinance, a listed company, has grown 90 per cent annually for the last four years +see 1able,, from 9ust two lakh members to :0 lakh members in less than three years. 1he loan disbursements ha%e gone up from 9ust <s 1D0 crore to o%er <s :,:00 crore in three years. #rowth prompted in%estment grades from rating agencies. -hene%er loans are disbursed in haste, one can anticipate problems later. &econd, the concept of self help group +&E#, was not followed. 1he concept in%ol%es forming groups of 1D5'0 women, who meet regularly, understand each other4s problems and bond for a while. 1hey are e)pected to sa%e a small amount, keep the money in bank and earn interest. A member could borrow when she falls ill and can4t go for work. &he would return the money with 175': per cent interest to the group. 1he reco%ery is almost certain, due to peer pressure and bonding with the group. &uch group formation and bonding takes a minimum of si) to nine months. 1he M=I did not ha%e so much time and wanted to grow rapidly in tune with their pri%ate eGuity in%estors. 1hey went in for the Aoint 6iability #roup +A6#, method. 1heir agents would persuade fi%e women to form a group and each guaranteed the others4 loans. Most members of A6# could not de%elop the special bonding they would ha%e in &E#.

1hird, the M=I apparently charged lower interests of 1'517 per cent in A6#, compared with that of 175': per cent charged by &E#s primarily run by the 3&2 banks. M=I interest rates were non5transparent and effecti%e rates often were o%er '7 per cent, considering loan processing fees, penalties and hidden charges. 1E/ &2$3<IM/ $2$$6/ Eow did the borrowers repayF Many adopted what is now known as He%er greening4 tactics. 1hey would borrow on Mondays from one M=I and repay to the other M=I on -ednesdays. &ince all of them were growing with plenty of funds from the pri%ate sector banks, the party went on. !f late the 3&2 banks too 9oined the party. =or instance a ma9or 3&2 bank that had <s 1,000 crore e)posure to &E# based loans, lent another <s (0 crore to M=Is. &hould we credit the #o%ernment of Andhra 3radesh for bursting the M=I bubbleF Eas the lending reached many subprime borrowersF 3rima5facie the e%idence seems in fa%our of the go%ernment. /ach poor family seems to ha%e borrowed o%er <s 80,000 per year. -hile e%ery M=I claims that it has lent 9ust <s 10,000 per family, multiple lending suggests a higher figure. Most M=Is claim they ha%e lent for income5generating acti%ities. In reality, most lending has been for consumption purposes I buying a 1>, repairing a house, paying for school5college fees or for serious illness of a family member. 1hus, indiscriminate lending and irresponsible borrowing was encouraged, leading to the subprime bubble. 1E/ -A; !21 =irst, the sector has to be regulated by the state go%ernments. 1hey can, howe%er, go o%erboard and stifle the sector. 3oliticians would be too happy to ask people not to repay their loans to banks. 1he Andhra ordinance e)pects M=Is to obtain appro%al to make tiny loans, which is impractical. Eence, regulation has to be tempered by a sensible institution like <$I. &econd, the regulation should encourage bonding their members, with sa%ings, self5help, education, and not 9ust credit. Money has to be lent only when the economic %iability of pro9ects is well established. 1he capacity of a %illage or a cluster to support income5generating acti%ities has to be worked out to cap M=I lending geographically. 1hird, the M=Is who gi%e credit to crores of women groups don4t employ women to the same e)tent. Most show 9ust 85: per cent women employees. 1his percentage must go up drastically. A holistic scheme to help the poor has to include I health insurance, self5help, education, employment and finally credit. Many M=Is o%erturned this philosophy by concentrating 9ust on credit. +1he author, a former I1 &ecretary, #o%ernment of @arnataka, is founder of $rickwork #roup.,

For microfinance companies, bad ne s contin!es to po!r" Former #BI $o%ernor &a$a 'en!$opal #edd( )as e*!ated microfinance lendin$ it) t)e acti%ities of s!b+prime lenders in t)e ,nited States" In an inter%ie it) E- on t)e occasion of )is book la!nc) in .!mbai, .r #edd( sa(s for+profit .FIs s)o!ld be treated at par it) mone(+lenders and s)o!ld not be s!b/ect to soft re$!lation as t)e( are a bi$$er risk to t)e s(stem t)an indi%id!al lenders )o e0tend loans o!t of t)eir o n net ort)" .r #edd( )as also blo n t)e )istle on anot)er fla%o!r of t)e season + financial incl!sion" Accordin$ to .r #edd(, some financial intermediaries are lookin$ to e0ploit t)e sit!ation in t)e $!ise of financial incl!sion, and ne !nre$!lated entities are $ettin$ a toe)old in t)e financial sector in t)e name of tec)nolo$(" 1o do (o! assess #BI2s ti$)tenin$ of polic(3 1as it taken t)e ri$)t steps to control inflation3 I t)ink conte0t!all( and directionall(, #BI is ri$)t on t)e spot" -)e e0act timin$ and t)e ma$nit!de are matters of /!d$ement" -)e problem for polic(makers toda( is t)e !ncertaint( in t)e $lobal econom(" Inflationar( press!res are $eneralised amon$ t)e de%elopin$ co!ntries" -)e press!re on food prices is partic!larl( ac!te in India" Inflation ma( settle earlier in India" I t)ink for India, t)e stron$er inflationar( press!res are some )at be)ind !s" W)ereas it ma( $et possibl( added for a co!ntr( like C)ina"

4o e need to $i%e more bankin$ licences, especiall( to corporate )o!ses3 It is diffic!lt to sa( specificall( abo!t t)e licence" .ore important is t)e iss!e of o ners)ip and $o%ernance and )o (o! ens!re re$!lation" -)e debate s)o!ld not be )et)er to $i%e ne licences, b!t )et)er a bank2s dominant o ner can be an ind!strial )o!se or not" If t)ere is a conflict of interest 5bet een t)e bank promoter and t)e bank6, t)en )o to address o ners)ip and $o%ernance iss!e3 -)en t)ere is a !ni%ersal reco$nition t)at banks are special, )ic) a$ain means t)at t)ere s)o!ld be discomfort if t)ere is a serio!s conflict of interest in%ol%in$ banks" In t)e conte0t of t)e c!rrent debate aro!nd t)e And)ra $o%ernment ordinance, )o do (o! t)ink t)e( s)o!ld be re$!lated3 One s)o!ld look at t)e incenti%e mec)anism" If (o! $o back to t)e person )o ori$inated t)e )ole concept of .FIs 5.o)ammed &!n!s6, )is %ie of for+profit .FIs is a mone( lender" So if it is forprofit and if t)ere is a$$ressi%e lendin$, it2s /!st mone( lendin$" Also, if (o! look at t)e a( reso!rces are le%era$ed, it2s more t)an a mone(+lendin$ b!siness" -)e mone( lender normall( lends o!t of )is o n mone( )ereas )ere, .FIs are act!all( borro in$ mone( from depositors and lendin$ t)e mone(" So essentiall(, )e is a le%era$ed mone( lender" In a a(, t)erefore, a for profit+.FI s)o!ld be re$!lated like an( ot)er mone( lender and t)ere s)o!ld be $ood mone( lendin$ le$islation in e%er( state" -)is is one a( of brin$in$ mone( lenders into a better re$!lator( frame ork" Also, !ltimatel( it2s somet)in$ like s!b+prime lendin$" -)e same incenti%es are operatin$ )ere" -)e onl( difference is t)at it as sec!ritisation and deri%ati%es t)at operated in t)e ,S )ile )ere it is priorit( sector lendin$ b( banks )ic) is p!s)in$ in t)e mone(" -)e idea t)at .FIs s)o!ld be treated like banks b!t $i%en soft re$!lations is dan$ero!s" At a $lobal le%el, t)e le%el of financial e0cl!sion is )!$e, bot) $loball( as ell as domesticall(" Is financial incl!sion in India mere slo$aneerin$3 Impro%ement in tec)nolo$( )as enabled financial incl!sion" Secondl(, $i%en t)e )!$e $o%ernment pro$rammes co%erin$ so man( people, it becomes economical for t)e $o%ernment to promote financial incl!sion" So t)ere is con%er$ence" B!t t)ere is one dan$er )ere like in s!b+ prime lendin$, some financial intermediaries in t)e name of financial incl!sion start e0ploitin$ t)e sit!ation" S!b+prime started it) t)e $ood intentions of pro%idin$ affordable )o!sin$" -)e constr!ction ind!str( anted to b!ild more )o!ses and t)e financial sector anted to lend more" So irresponsible lendin$ and !ncontrolled constr!ction of )o!ses led to mone( bein$ lent to t)ose )o co!ld not afford )o!ses" &o! ma( end !p in a sit!ation, )ere in t)e name of financial incl!sion, (o! ma( come across financial intermediaries )o o!ld e0ploit t)e sit!ation, or in t)e name of tec)nolo$( %irt!al financial f!nctions ma( be taken o%er b( some ot)er companies" I can see si$ns of t)is )appenin$" &a$a 'en!$opal #edd( IFC ma( in%est 789m in Indian microfinance o!tfit S!bmitted b( mffoc!s on Fri, :;<;=<>:;; + ;9::8 in ? ? in%estment top

!ndefined

Microfinance Focus, January 14, 2011: For promotin$ a more balanced $ro t) of microfinance in India, International Finance Corporation 5IFC6 ma( in%est e*!it( !p to 789 million for a stake in @olkata based microfinance instit!tion, Band)an Financial Ser%ices, accordin$ to IFCAs proposed pro/ect list" ,nder t)e proposed pro/ect IFC intends to increase access to finance in some of t)e poorest states in t)e nort)ern and eastern parts of India and to promotin$ a more balanced $ro t) of microfinance in India" .ost of t)e .FIs operatin$ in India are concentrated in so!t)ern India" Band)an2s operations on t)e ot)er )and are lar$el( in t)e nort)ern and eastern part )ere microfinance penetration is %er( lo and %er( fe .FIs of si$nificant siBe are located" Band)an )ic) is t)e fo!rt) lar$est microfinance instit!tion in India operates in ;C Indian states in t)e nort)ern and eastern parts of t)e co!ntr(, incl!din$ some of t)e poorest states, )ere pop!lation densit( is )i$) and microfinance penetration is lo " It )as abo!t 8": million borro ers and a loan portfolio of abo!t ,S79>: million e*!i%alent" -)e ma/or s)are)olders in Band)an incl!de, -)e Small Ind!stries 4e%elopment Bank of India 5SI4BI6 it) a ;:"C;D stake and t)ree irre%ocable p!blic c)aritable tr!sts, incl!din$ t)e Financial Incl!sion -r!st, t)e Nort) East Financial Incl!sion -r!st and t)e Band)an Emplo(ees Welfare -r!st , )ic) to$et)er )old an abo!t CED stake"

MFI Bandhan Financial may raise $35 mn from IFC

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Microfinance firm $andhan =inancial &er%ices 3%t. may raise an eGuity round of up to 2&. 8D mn from International =inancial orporation +I= ,, the pri%ate in%estment arm of -orld $ank. 1he deal could be the largest eGuity fundraise by a microfinance institution after the A3 ordinance crisis hit the industry. @olkata5based $andhan was founded by handrasekhar #hosh in '001 and is the fourth largest M=I in India. $andhan =inancial &er%ices is the fastest growing M=Is in India whose base of operations is out of Andhra 3radesh. !ther ma9or M=Is include &@&, &pandana &poorthy, $hartiya &amruddhi =inance, &hare Microfin who are all based out of Andhra and ha%e been impacted by the crackdown by the go%ernment. Also, it has till date only raised one round of eGuity funding when it got C10.7 million +<s D0 crore, in%estment from &mall Industries .e%elopment $ank of India +&I.$I,.