Microfinance institutions are must for poor, says NCAER

Although the survey has been conducted in only five urban centres of Kolkata, Hyderabad, Jaipur, Chennai and Lucknow and the surrounding semi rural areas, it speaks volumes about people’s dependence on MFIs as they provide variety of products to borrowers at the terms acceptable to them.

The study — ‘Assessing the Effectiveness of Small Borrowing in India’ also finds the MFIs as an important tool of borrowing for low-income groups and rural households  which do not have access to formal financial services and can not obtain loans during emergencies.

MFIs, off late, have come under attack for charging “usurious” interest rates on loans, making huge profits and forcing multiple loans on helpless borrowers. The study has addressed these issues, but has stopped short of providing a solution.

Contrary to the popular belief that the MFIs charge exorbitant interest rates o loans, the study says, while the transaction cost of borrowings are higher for the formal banking system, its is much less for the MFIs and this makes up for a little higher rate of interst charged by them.

The study was released in New Delhi by Rural Development Minister Jairam Ramesh. Centre for Macro Consumer Research at NCEAR Director,  said “the poor need not just greater access to financial services, but also more regular access to help with business opportunities, development of skills, and infrastructure that can, in turn, help improve livelihood opportunities and ability to deal with emergencies”.