1 year, 10 months ago
What is happening with microloans in India? Do they help build business?
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Dr. Mahua Barari Mitra, professor of economics and provost fellow for public affairs 2009-2010, traveled to India recently and spoke with four women who have benefited from Grameen principles pioneered by Nobel Peace Prize winner Dr. Muhhamad Yunus. Grameen, which means “of the village” in Bengali, is a system where private organizations provide micro-loans to people in developing countries so the borrower may establish a business under a reasonable loan repayment plan. The women showed Mitra how these loans have enabled their communities to have safe drinking water, housing, sanitary latrines, electricity and schools.
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Also, you may want to read this one:
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MICROCAPITAL BRIEF: Microloan Default Risk Rises in India as SKS Microfinance Plans Initial Public Offering (IPO)
A trend in initial public offerings (IPOs) by microfinance institutions in India could potentially increase the risk of defaults by microborrowers. SKS Microfinance, an Indian microfinance institution, has recently filed to raise up to USD 250 million in an initial public offering (IPO), as initially reported by MicroCapital on March 9, 2010. This pending IPO is causing concern that an IPO trend in India could trigger a trend in microfinance institutions’ (MFIs’) funding sources, as reported by MicroCapital on June 16, 2010, which could raise the risk of loan defaults by pressuring MFIs to disburse riskier microloans.
Traditionally, MFIs in India are funded by loans and grants from other financial institutions and foundations. However, if an IPO trend occurs, a greater number of MFIs could receive funding from public investors. As such, MFIs may face increased pressures to provide asset and revenue growth, thus increasing the risk that loans will be granted to borrowers who might otherwise not have been eligible for a microloan, thus increasing default risk. Additionally, investor interest in MFIs which are granting high risk loans due to their potentially high yield could cause valuation issues, considering this is a business environment in which due diligence on loan recipients is often not performed, as India does not have a national system for tracking borrowers’ credit histories.
Some worry that this environment is similar to the one which preceded the recent economic crisis in the United States. “Globally, microfinance is showing characteristics of the Western financial markets before the collapse,” says Sanjay Sinha, managing director at Micro-Credit Ratings International (M-CRIL) in Gurgaon. “In the U.S., homeowners were given loans at 120 percent of the value of their properties. In rural India, people are being lent to at 150 percent of the value of their enterprises.” 1
source: http://www.microcapital.org/microcapital-brief-microloan-default-risk-rises-in-india-as-sks-microfinance-plans-initial-public-offering-ipo/
================================
Also, you may want to read this one:
================================
MICROCAPITAL BRIEF: Microloan Default Risk Rises in India as SKS Microfinance Plans Initial Public Offering (IPO)
A trend in initial public offerings (IPOs) by microfinance institutions in India could potentially increase the risk of defaults by microborrowers. SKS Microfinance, an Indian microfinance institution, has recently filed to raise up to USD 250 million in an initial public offering (IPO), as initially reported by MicroCapital on March 9, 2010. This pending IPO is causing concern that an IPO trend in India could trigger a trend in microfinance institutions’ (MFIs’) funding sources, as reported by MicroCapital on June 16, 2010, which could raise the risk of loan defaults by pressuring MFIs to disburse riskier microloans.
Traditionally, MFIs in India are funded by loans and grants from other financial institutions and foundations. However, if an IPO trend occurs, a greater number of MFIs could receive funding from public investors. As such, MFIs may face increased pressures to provide asset and revenue growth, thus increasing the risk that loans will be granted to borrowers who might otherwise not have been eligible for a microloan, thus increasing default risk. Additionally, investor interest in MFIs which are granting high risk loans due to their potentially high yield could cause valuation issues, considering this is a business environment in which due diligence on loan recipients is often not performed, as India does not have a national system for tracking borrowers’ credit histories.
Some worry that this environment is similar to the one which preceded the recent economic crisis in the United States. “Globally, microfinance is showing characteristics of the Western financial markets before the collapse,” says Sanjay Sinha, managing director at Micro-Credit Ratings International (M-CRIL) in Gurgaon. “In the U.S., homeowners were given loans at 120 percent of the value of their properties. In rural India, people are being lent to at 150 percent of the value of their enterprises.” 1
source: http://www.microcapital.org/microcapital-brief-microloan-default-risk-rises-in-india-as-sks-microfinance-plans-initial-public-offering-ipo/
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