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Lending Schemes for the Poor

Probal Roy Chowdhury

By Prabhu Ghate
Sage Publications, New Delhi, 2007, pp. 227, Rs. 350.00


Prabhu Ghate provides a fascinating account of the Indian micro-finance scenario. For the non-initiated, the word micro-finance brings several very contradictory images to mind. One is that of Mohammad Yunus sharing the 2006 Noble Peace Prize with his creation, the Grameen Bank, the micro-finance organization in Bangladesh. Another is that of farmer suicides in Andhra Pradesh, purportedly arising out of the farmers' inability to repay their loans. Given all these contradictory information, one may naturally ask as to what is so great about micro-finance. In particular, what is micro-finance all about anyway?   Micro-finance essentially refers to lending schemes for the poor where the loan amounts are usually rather small (hence the prefix micro). The Grameen model in particular has many other interesting features, e.g. group-loans, focus on women, etc. The surprising thing though is not that the loan amounts are small, but rather that these loans are made at all and, as recent experiences, in particular that of the Grameen Bank in Bangladesh suggest, that such loans can have very high repayment rates. This is quite remarkable given that traditional economic theory tells us that in the absence of collaterals such loans are unlikely to be viable. Not surprisingly, micro-finance appeared to be a win-win situation for all concerned. In fact, 2005 was declared as the international year of micro-finance. Further, micro-finance schemes were given pride of place in meeting the Millennium Development Goals.   Like in many other developing countries, over the last decade or so the Indian micro-finance scenario has grown rapidly. In fact some would argue that this growth was much too rapid, being at the expense of quality. Moreover, as the sub-title of this book suggests, the author has some sympathy for this viewpoint. Even if one does not completely agree with this viewpoint, there is clearly a need for pausing and stocktaking--and for some clear-headed assessment of the emerging trends. This book is a laudable effort in this direction.   The dominant Indian micro-finance model is the self-help group (SHG) linkage approach being coordinated by NABARD, which covered about 14 million poor households in March 2006. As we later discuss, the SHG linkage model has largely followed a different pathway compared to the Grameen Bank model. The MFI model, which covered about 7.3 million households in 2006, on the other hand, largely mimics Grameen. Even allowing for some overlap between the two sets of borrowers, these are impressive numbers. The book provides ...

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