Microfinance institutions not the answer for poverty alleviation, says Jairam Ramesh

Ramesh S Arunachalam

Union Minister for Rural Development, Jairam Ramesh, released a joint study by NCAER (National Council for Applied Economic Research) and CMCR (Centre for Macro Consumer Research) on ‘Assessing the Effectiveness of Small Borrowing in India’ at New Delhi on 10th October. According to Mr Ramesh, MFIs (microfinance institutions) “are not answers to poverty alleviation and certainly not the panacea they like to see themselves asⁱ”

While Moneylife will be doing a detailed critique of the NCAER study (sponsored by the Microfinance Institutions Network, MFINⁱⁱ ), its methodology and findings separately, certain aspects of the study, based on material currently available in the public domain, deserve to highlighted:

First, it is very interesting to note that the minister’s interpretation (of the NCAER study findings) runs counter to the views of Dr Rajesh Shukla (Director of NCAER-CMCR), as expressed in two prelaunch articlesⁱⁱⁱ . In these articles, Dr Shukla argues, “An alternative source of finance like microfinance has come as a breakthrough… MFIs attempt to alleviate the deplorable situation of the poor and require freedom to operate”^iv .

On the contrary, after releasing the report, Mr Ramesh said, “the findings of the study did not provide a robust enough defense of MFIs vis-à-vis the self-help groups (SHGs).” The real comparison of MFIs should be with moneylenders (the informal sector) and not SHGs, he noted. He further added, “There was hype governing some of the MFIs. They set out to claim that they are solving India’s poverty problems. If they were modest in their ambitions, the vehemence with which their critics struck back would have been even much lesser… vehemence of backlash was directly proportional to the exaggerated nature of the claims of many of these institutions.” He made this statement at the release function while referring to the recent fracas in the functioning of MFIs in Andhra Pradesh.^v


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