Tuesday, April 26, 2011

Independent Micro-finance...

Article;

http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/iba-backs-icicis-micro-loans-recast-proposal/articleshow/8043281.cms

Comment;

As far as micro-finance is concerned it should be independent of regular baking. Since the situation is getting same as shadow banks (banks that borrow from regular banks and lend on higher interest rates) this is getting complex. We need some stabilizers to prevent a situation like this. Micro-finance should be run on its own deposits and should adjust lending rates to their own deposit rates. That would be fair and should never extend loan for agriculture because there risk is maximum, depending on monsoon and you are risking poor depositors’ money. Extending repayment period is a good option and would de-motivate excessive risk taking in future. Micro-finance group can also opt for extending loans against silver since it is also getting high and should not be creating debt bubbles for the rest of the economy. The aim of micro-finance should be to remove poverty and not to add to it.

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