Image via WikipediaHYDERABAD: India's microfinance model is not sustainable due to its overdependence on the government, the huge subsidy given by the state and the lack of a regulatory framework to check the exploitation of the poor, sectoral practitioners from Bangladesh say.
They are of the opinion that the Bangladeshi model is more sustainable as it is run professionally and is yet pro-poor, with civil society and NGOs playing an active role at the grassroots level and the government acting only as a facilitator.
The experts said while the Indian model is limited to providing credit, Bangladesh has NGOs and microfinance institutions (MFIs) working in the areas of education, health and gender.
This comparison is despite the whopping 27 per cent interest charged in Bangladesh against a meagre three per cent in Indian states like Andhra Pradesh, which has the highest number of people - 10 million - covered under micro credit.
An international summit on microfinance and inclusive development held here last week provided an opportunity to delegates from various countries to share their experiences and gain first-hand knowledge of the working of women's self-help groups (SHGs) in Andhra Pradesh.
Talking to IANS, Atiqun Nabi, Asia head of the International Network of Alternative Financial Institutions ( INAFI )), and Humera Islam, executive director of the Shakti Foundation of Bangladesh , voiced their doubts on the sustainability of Indian microfinance.
"Unlike in India, where the state is playing a very important and active role, in Bangladesh it is basically civil society and NGOs who take microfinance to the ground. That is why microfinance in Bangladesh is still pro-poor," said Atiqun Nabi, who is from Bangladesh.
"What if the government here stops supporting the programme," asked Nabi, who also saw the danger of the party in power using the SHGs to further its political agenda and the groups suffering with the change of government.
He also pointed out that the microfinance programme in India lays more emphasis on economic development but is not so concerned about issues like women's empowerment, health and education.
"The whole thing here is government-sponsored. The government is supposed to work at the macro-level, but they are stepping into a domain that is clearly not theirs. The question is how far a government can carry on because it has much more important things to do," Humera Islam of the Shakti Foundation, one of the largest MFIs in Bangladesh, told IANS.
She pointed out that Bangladesh has brought well-thought of regulations allowing free market institutions like NGOs and private enterprises to operate at the micro-level but protecting the interests of poor by fixing the upper limit of interest.
Justifying the 27 per cent interest rate, she attributed it to the administrative and operational costs and the capital funds the MFIs need to create to take loans from banks.
"These are financial calculations and this has nothing to do with exploitation. You have to have money in the first place to run a project."
Atiqun Nabi attributed the success of microfinance in Bangladesh to the regulatory framework for MFIs with the condition that they can't charge beyond a certain per centage.
However, interest didn't matter to him so long as there was no exploitation and the needs of the borrowers were met in a professional manner. "The borrowers here are used to three per cent interest but what will happen if it is withdrawn? You may have a formative stage of one or two years but ultimately you have to compete with the market rate," Nabi pointed out.
Humera Islam said that since women in Andhra Pradesh and other states in India were dependent on the government, they are not likely to really become empowered. "If you're not taking ownership of the process of development, the rate of recovery is bound to be bad and there will be no sense of responsibility," she said.
She also found that the SHGs comprise women of the same socio-economic status and perhaps do not involve the poorest of the poor.
The micro-credit practitioners feel that the sector in Bangladesh had matured to an extent that even the departure of Noble laureate Muhammed Yunus from Grameen Bank had no impact on the movement.
"This is the beauty of Bangladesh microfinance. Every time there is a big crash, people say it will affect MFIs but what happens at the macro-level makes no difference. We are very supportive of Mohammed Yunus as he is our national leader but the government has done its job," Islam said.