Imagine being forced from your home and land due to an upcoming dam, being under-compensated and as a result being forced to sell your family as bonded labour. This was the story of Ittamma Polkurthi and her family from Medak, Andhra Pradesh as sited by Unitus, a non profit organisation. She then went on to take a Rs 2,000 loan from SKS Microfinance, a microfinance institution (MFI). The loan enabled her to harvest her acre of land.With subsequent loans, she bought banana plants and started a banana plantation on her acre earning Rs 55,000. She used the profits to rebuild her house, lease two additional acres, plant more bananas, buy a buffalo and hire more employees. Most importantly, she paid off the debts and freed her family from bonded labor.
SKS Microfinance is one of the 800 MFIs serving 7.3 million households in India. Launched in 1998, it has provided over Rs 425 crore in loans to nearly 320,000 women clients in India through 138 branches.
Veena Mankar, a Mumbai banker wanted to help the slum dwellers of her city by providing them access to loans and other financial services. Ms Mankar raised Rs 25 lakh from relatives and set up Swadhaar FinAccess. The MFI was having trouble finding grants until the Michael and Susan Dell Foundation (MSDF) came to its rescue. Swadhaar received $600,000 in grants over three years form MSDF early this year. In just a few months since its inception in March 2006 it has acquired 384 clients and has more than Rs 20 lakh outstanding as loans.
Grameen Bank pioneered microfinance, a system for providing small loans to poor, self-employed entrepreneurs in the early 1970’s. According to a World Bank researcher, Shahidur Khandker, 40 per cent of the overall reduction of poverty in Bangladesh in recent years has been due to microfinance.
SEWA Bank pioneered microfinance operations in Gujarat in 1973. 4,000 women contributed Rs 10 share capital to establish the Mahila Cooperative Sewa Bank. Today the bank covers 175,000 clients and had loans outstanding in excess of Rs.13 crore in 2003.
The rest of India is not far behind. According to the report Microfinance in India: State of the Sector by CARE India, microfinance in the country today has the potential to reach 80 per cent of the population who do not have access to banks. The larger of the two models, the Self-Help Group (SHG) Bank Linkage Programme covered about 14 million poor households in March 2006 and provided indirect access to banking to another 14 million. It is estimated that MFIs serve 7.3 million households, of which 3.2 million are extremely poor.
The banking sector has also played an important role in Indian microfinance development. Nabard’s Bank Linkage Programme, has connected thousands of SHGs with formal banks. In the fiscal year 2005-06, more than 960,000 SHGs received bank loans taking the total SHGs to more than 2 million.
Philanthropy is a vital source of capital in this sector. Organisations like the Ford Foundation have supported microfinance since the 1970’s. Now a slew of new organisations are embracing the sector. The Bill and Melinda Gates Foundation gave $5.8 million over 4 years to ACCION International for the provision of microfinance to the poor in India and sub-Saharan Africa. Last year Pierre Omidyar of eBay and his wife invested $100 million in international microfinance initiatives through a unique partnership with Tufts University
Foundations, individuals, government and private investors are all now pumping millions of dollars into microfinance. The model holds the promise of alleviating poverty in a self-sustaining way, with an increasing number of MFIs breaking even and earning profits.