Alex Counts is President and CEO of Grameen Foundation.
Recent articles in the Wall Street Journal about the activities of Indian microfinance institutions (MFIs) and the role global investors are playing in the sector’s development have sparked intense debate about microfinance losing its way. While the articles do highlight a few real challenges facing clients and MFIs in some isolated cases, we believe they contain significant errors, omissions and distortions. Two leading microfinance practitioners, Vikram Akula of SKS and Samit Ghosh of Ujjivan, have critiqued the articles and we encourage people to read what they have written.
When Grameen Foundation first began working in India in 2000, many of today’s leading MFIs were still in their early stages. There has been remarkable growth and outreach since then, with MFIs now serving more than 15 million households and a significant reduction in poverty. India’s microfinance sector has also emerged as a model for other countries; for instance, efficiency gains have made it possible to lend profitably at lower interest rates than virtually any country except for Bangladesh and Bolivia.
With this expansion have come the inevitable growing pains that occur in any new industry. The Indian microfinance sector has already acknowledged some of these issues—such as cases of over-indebtedness in a few areas of a few southern states—and is implementing plans to address them. The reporter also missed a golden opportunity to discuss how they are being addressed: national and state-level microfinance associations are already working to share best practices— particularly those related to preventing client indebtedness—and a bill pending in India’s parliament would finally place MFIs under a single regulator (a step long advocated by microfinance practitioners and Grameen Foundation, as part of a larger reform effort).
The strength of microfinance lies in the opportunities it provides to the poor and the responsibilities it demands from both clients and MFIs. During the past decade, we have worked with key organizations in the sector including CASHPOR, SKS, SHARE and Grameen Koota and also co-founded Grameen Capital India to help smaller Indian MFIs access much needed funding. Today, one of our key goals is helping MFIs track how well they are meeting their mission of reaching the poor and moving them out of poverty through tools such as the Progress out of Poverty Index ™. We hope that accountability measures like these and the proactive steps already underway will go a long way in helping to break India’s generational cycle of poverty.