1. A critique of microfinance –
what‟s wrong and what‟s right
Cranfield
January 2011

2. Is Microfinance -
An amazing new tool to rid the
world of poverty ?
OR
Yet another way for international capital to
marginalise and profit from the poor ?

3. What are MF‟s main features ?
• Small loans
• Only loans – not savings
• Short terms, frequent repayments
• Mainly for women
• Mainly through some form of group
• Unsecured
• Mainly from specialised MFIs
• Very expensive

4. Are these features „good‟ or „bad‟ ?
Each feature has several „faces‟:
• It helps MFIs to do „good‟
• It also helps MFIs to „do well‟

5. Why are MF loans so small ?
- because the poor don‟t need big loans
- because they might not repay them
- because interest rates can be higher

6. Why don‟t MFIs take savings ?
- because the poor cannot save
- because MFIs cannot take
deposits
- because it‟s cheaper to borrow
from Citibank, ICICI Bank and SBI

7. Why short terms and regular
repayments ?
- because poor people cannot invest
for the long term
- because poor people are unreliable
- because we must get their money
when they have it.

8. Why do MFIs lend only to women ?
- because it‟s good to empower them
- because women work better in
groups
- because women are weak and they
do what they are told

9. Why do MFIs work through groups?
(Grameen or SHGs)
- to empower the poor and build
community solidarity
- to outsource appraisal and collection,
free of charge
- to mobilise (fierce) peer repayment
pressure

10. Why is MF done by new
specialised institutions ?
- because reaching the poor needs
social commitment and new skills
- because the banks do not want to
change their traditional methods
- because it‟s much more profitable
than banking

11. Why is MF so expensive ?
- because the poor need service on their
doorsteps, which is, sadly, very costly
- because moneylenders are the only
competition
- because microcredit is like shampoo
sachets - there‟s big money to be made “at
the bottom of the pyramid”

12. Andhra Pradesh –
what‟s gone wrong ?
• Greedy investors
• Foolish bankers
• Misguided borrowers
• Frustrated bureaucrats
• Opportunist politicians
• Irresponsible journalists

13. What‟s going to happen ?
• Collapse of the MF industry, insolvency –
(not such a big deal for the clients)
• Gradual compromise, some slowing down,
little learning, wait till next time
• Sort out, some well-deserved failures,
survivors will learn and progress

14. How can MF be improved ?
• NOT by capping interest rates)
• NOT by „financial literacy training‟
• NOT with foreign aid, DFID and so on
• NOT by government control

15. Improvements
• Become banks or merge with or sell to
banks – take savings
• Move to community ownership – MACS…
• Encourage „graduation‟, to „grown-up‟
bank accounts
• Admit men, stop discrimination
• Add real insurance – not merely to protect
loan balances

16. Exaggerated expectations
• MF is a short-term, temporary, low
quality “band-aid” for poverty
• Stop the hype, accept that MF is NOT
a panacea for poverty
• Would YOU bank with an MFI ?