Micro finance institutions have often been hyped as the protagonist of financial inclusion in India. Financial inclusion being a very glorified dream for govt. of India and RBI and MFIs seemingly fullfilling that dream has given MFIs a very important position in eyes of policy makers. at the central level neither the centre nor the RBI has raised any eyebrows on functioning of MFIs and the Malegam commitee was set up only after the Andhra govt.'s ordinance created hurdles in functioning of MFIs and restrained their profitability. MFIs like most financial intermediaries are non banking financial institutions and like all other forms of financial intermediaries they must also have an independent regulator. Although presently they function under RBIs regulations but their are no specific set of guidelines set up for their functioning and their is a need for one such set of guidelines.
Two things to be considered while looking into role of MFIs in financial inclusion are:
1. MFIs extend only credit facilities to the poor and financially excluded i.e. those who are not under banking net. However, the question to be asked is if only borrowing from a financial institution a sign of financial inclusion because although credit facilities help in starting economic ventures but, it is promotion of savings habbit that helps in economic self reliance. MFIs don't promote saving habbit in their beneficiaries. So aren't MFIs like the traditional money lenders creating an indebted class that is born and dead in debt.
2. The second issue is the exorbitant rates charged by MFIs and the way they collect it through agents. MFIs rates are very high in comparison to prime lending rates of the banks. So, the fact is the rich who can afford high interest rates are finacially included so they end up paying low rates and the poors who can't afford have been excluded by the banks and they ebd up paying high rates. isn't this unfair. It is unfair and socially undesirable.
Thus, MFIs although are including more and more people in financial net but, the practices they follow have several loopholes and need to be regulated. Although they are not as big a villain as money lenders still, they are not the protagonists of financial inclusion and govt. needs to create a fullfedged policy for financial inclusion.
Two things to be considered while looking into role of MFIs in financial inclusion are:
1. MFIs extend only credit facilities to the poor and financially excluded i.e. those who are not under banking net. However, the question to be asked is if only borrowing from a financial institution a sign of financial inclusion because although credit facilities help in starting economic ventures but, it is promotion of savings habbit that helps in economic self reliance. MFIs don't promote saving habbit in their beneficiaries. So aren't MFIs like the traditional money lenders creating an indebted class that is born and dead in debt.
2. The second issue is the exorbitant rates charged by MFIs and the way they collect it through agents. MFIs rates are very high in comparison to prime lending rates of the banks. So, the fact is the rich who can afford high interest rates are finacially included so they end up paying low rates and the poors who can't afford have been excluded by the banks and they ebd up paying high rates. isn't this unfair. It is unfair and socially undesirable.
Thus, MFIs although are including more and more people in financial net but, the practices they follow have several loopholes and need to be regulated. Although they are not as big a villain as money lenders still, they are not the protagonists of financial inclusion and govt. needs to create a fullfedged policy for financial inclusion.
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