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Microfinance termed discredited model

November 29, 2012

NEW DELHI, Nov 28: Microfinance is a “discredited model” and to believe that poverty alleviation in India is possible through such methods is “crap”, Rural Development Minister Jairam Ramesh said on Wednesday.

“Nothing can stop an idea whose time has gone,” Ramesh told a microfinance conference in New Delhi, according to the Press Trust of India.

“It is a discredited model,” he said, referring to the system in which small loans are made to people who do not have access to the mainstream banking system.

Ramesh, known for being outspoken, conceded that “there are many advantages when it comes to delivery of finance through the microfinance route”.

“But one should be somehow more modest in the expectation of microfinance and microfinance institutions,” he went on.

“To think that we are going alleviate poverty is a tall, tall claim. Poverty alleviation through microfinance -- it is crap.”

The multi-billion-dollar industry in India, once seen as a saviour of the poor, has been in crisis since a backlash against alleged abusive practices by debt collectors and extremely high interest rates for loans.

The sector has also under been fire in neighbouring Bangladesh where the micro-lending model was pioneered, with Prime Minister Sheikh Hasina accusing the industry of “sucking blood from the poor” due to high lending rates.—AFP