Andhra Pradesh - Hyderabad

‘Microfinance needs regulation’

HYDERABAD: Experience with private microfinance in the State has not been good, according to Verghese Jacob, Chief Integrator of Byrraju Foundation, a non-governmental organisation. In fact, microfinance needs a lot of regulation in the country.

Addressing the Association for Consumer Research-Asia Pacific Conference 2009 at the Indian School of Business here on Saturday, Mr. Jacob said that though the State government was extending microfinance to members of self-help groups at only 3.5 per cent interest, several private institutions were charging a hefty 20-25 per cent interest.

“You can’t expect a poor person to pay that much interest, when he is still fighting poverty,” he said.

Microfinance was usually taken for onetime investments.

Though the poor sought money for creating an asset and thereby economic activity, they generally ended up clearing a previous bad debt or giving it away in dowry to their daughter’s marriage or paying hospital bills.

Mr. Jacob wanted the need for obtaining microfinance assessed and the healthy models of collection introduced.

He also felt that “politically microfinance was given as a favour by the State.”

Narrating the various initiatives of Byrraju Foundation, which adopted 200 villages, and how it was making a difference for 30 lakh people, Mr. Jacob argued that the bottom of the pyramid (BoP) should be reversed to ensure inclusive development.

He disagreed with the theory that economic ability at the bottom of the pyramid should be capitalised.

Mr. Jacob wondered how some people in the rural areas spent money to buy packaged drinking water to mix with liquor, though they did not buy packaged water for daily consumption at home.

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