Microfinance in Andhra Pradesh and Tamilnadu went kaput.
Microfinance has microcredit - offering loans to groups rather than individuals sans collateral, mind you. Your group members' credit rating is equal to credit rating of group. Obviously your group members must be chosen with care by you. Aren't you creating a social divide by doing this?
OK so in India people can't pool money to form deposits by law for the microfinanciers to lend. Deposits are in form of donations. Private parties won't lend because you don't part your profits with them - you are an NPO. So where does money come from . Nowhere!
So now banks like ICICI assured buying the portfolio of the microfinance institutions in return for a guarantee from the MFIs that ICICI could now collect the loans from the borrowers. What followed was a typical loan collection procedure that runs in banks. MFI were formed with the purpose of having no legal document for loan collection and based on group borrowing principle where you repay a loan under peer pressure . The new ICICI model caused multiple borrowing by an individual often to repay previous borrowings and suicides. Rate of returns declined to almost 10% in 2011.
Hence the Parliament Bill in 2012
