Saturday, February 7, 2009

Scope for Microfinancing in India

I was born at a nondescript place in rural Bihar. Today, when I look at the the place, I see a lot of potential - waiting to be leveraged. An educated youth wanting to enhance his skills just so much as to get a job; A cattle manager wishing to increase his cattle strength to supply milk to larger consumer group (btw, I was amazed by this guy's implicit economic concepts- he talked about economics of scale and incremental cost vs production - though not in those words) ; a trader that sees a potential for home-made incense sticks.

There are a lot of needs that exist and wants that can be created among the population in the countryside. Many of them have the desire, the dream of making it big - to grow. But one of the major road blocks in executing these (seemingly) ambitious plans is the non-availability of loans to (seemingly) non-credit worthy clients.

This is where a microfinance firm comes in. These guys are supposed to see the demand critically, analyse the credit-worthiness of the person; And provide support for these people to grow.

There is little point in giving loans for consumption, the growth comes only for money used in productive way. If the loan is spent in celebrating some thing, true - the money goes into the economy and keeps the ball rolling. But if the same amount is used invested in a business, the economic effects are multiplied many times over.

It's this growth of small enterprises that really drives the economy. I hope that MFIs will help in extensive proliferation such small/cottage/medium size industries and leverage our country from a developing to a developed one.

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