OMTEX CLASSES: Commerce II ARTICLE;2 Role of Private Sector in Microfinance in Maharshtra.

Commerce II ARTICLE;2 Role of Private Sector in Microfinance in Maharshtra.

Introduction:The concept of Microfinance is dealing with providing low interest and minimum formalities in financial asssiatnce to small scale and cottage industries in Maharashtra. The theoretical base of MicroFinance is developing the system through which the business or individual can get an almost unsecured loan, sometimes with guarantor and sometimes just with the honest trust and the assumption that the money would be paid back promptly with the interest by the borrower.

Entry of private sector in Micro finance;The private sector has entered basically in the format of ‘Patpedis’ in the regions of Maharashtra. These Patpedhi’s are nothing but small groups of unorganized sector which come together with funds and profits from the lending activities to the various members of the fund.

From a very preliminary stage of the MoneyLender  Controlled lending now the same has been transformed into the Professional and customer friendly format of lending in Maharshtra and we appreciate the same thing as Microfinance. To put it in simple words it is providing the financial solutions to the needy group based on the trust and the repayment capacity expected from the earlier transactions.

Growth of Microfinance in Maharshtra: Modern microfinance emerged in the 1970s with a strong orientation towards private-sector solutions. This resulted from evidence that state-owned agricultural development banks in developing countries had been a monumental failure, actually undermining the development goals they were intended to serve. Microfinance experts generally agree that women should be the primary focus of service delivery. Evidence shows that they are less likely to default on their loans than men. Industry data from 2006 for 704 MFIs reaching 52 million borrowers includes MFIs using the solidarity lending methodology (99.3% female clients) and MFIs using individual lending (51% female clients). The delinquency rate for solidarity lending was 0.9% after 30 days (individual lending—3.1%), while 0.3% of loans were written off (individual lending—0.9%).Because operating margins become tighter the smaller the loans delivered, many MFIs consider the risk of lending to men to be too high. This focus on women is questioned sometimes, however. A recent study of microenterpreneurs from Sri Lanka published by the World Bank found that the return on capital for male-owned businesses (half of the sample) averaged 11%, whereas the return for women-owned businesses was 0% or slightly negative.

Scope of Micro Finance: Regionally the highest concentration of these accounts was in India (188 million accounts representing 18% of the total national population). The lowest concentrations were in Latin American and the Caribbean (14 million accounts representing 3% of the total population) and Africa (27 million accounts representing 4% of the total population, with the highest rate of penetration in West Africa, and the highest growth rate in Eastern and Southern Africa  ). Considering that most bank clients in the developed world need several active accounts to keep their affairs in order, these figures indicate that the task the microfinance movement has set for itself is still very far from finished.
By type of service "savings accounts in alternative finance institutions outnumber loans by about four to one. This is a worldwide pattern that does not vary much by region."
An important source of detailed data on selected microfinance institutions is the MicroBanking Bulletin, which is published by Microfinance Information Exchange. At the end of 2009 it was tracking 1,084 MFIs that were serving 74 million borrowers ($38 billion in outstanding loans) and 67 million savers ($23 billion in deposits).
As yet there are no studies that indicate the scale or distribution of 'informal' microfinance organizations like ROSCA's and informal associations that help people manage costs like weddings, funerals and sickness. Numerous case studies have been published however, indicating that these organizations, which are generally designed and managed by poor people themselves with little outside help, operate in most countries in the developing world.
Help can come in the form of more and better qualified staff, thus higher education is needed for microfinance institutions.
Challenges of Micro Finance Institutions:
n the recent years, though money lending through MFIs has become a major financial activity in the villages, barbaric and inhuman methods such as harassing borrowers, intimidating, abusing, mentally and physically harassing them have been incorporated into the whole process of money lending. The borrowers are always under the pressure to repay the loan (on a weekly basis) at a heavy compound interest for petty loans they take.
Another argument is that MFIs lend money at exorbitant interest rates which range from 20 percent to 40 percent. This ugly face of MFIs gives us a vivid picture of the dark underbelly which is now making its way into the media.
In the name of empowering the poor, this form of organized exploitation has given many reasons for businessmen to make money at the cost of the poor, who are often seen as “fortune at the bottom of the pyramid.” Previously, money lenders lent money at higher rates of interest because it was the individual who was lending money, but now, it is an institution comprising of a group of individuals who are lending money and in turn, pocketing extra money from the poor in the name of interest rate.

Conclusion: Microfinance as an  institution that would combine the strengths of an NGO and that of a financial institution would be beneficial to a community. But, the reliability factor on such institutions is always questionable because there is a risk of these institutions becoming like the regular MFIs which petrify the beneficiaries to repay loans. So, this model should enable members of a community to have access and control over the financial resources.