Mfi in Kerala

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  • Topic: Poverty, Microfinance, Kerala
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  • Published : July 3, 2012
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INDIAN INSTITUTE OF MANAGEMENT, KOZHIKODE
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KUDUMBASHREE|
A Study on Microfinance in Kerala|
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Section - E
Manju Nair – PGP/015/288
Harini Narayanan – PGP/015/278
Samarth Wadhwa – PGP/015/316
Samresh Kumar – PGP/015/317
Siddhartha Roy - PGP/015/321

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INTRODUCTION
In the early 1990s, following explosive demand for their services, a number of nongovernmental organizations (NGOs) that provided loans to the poor decided that the only way to keep up with the demand was to spin off commercial microfinance organizations. These new organizations combined two previously separate institutional “logics”: a development logic that guided their mission to help the poor, and a banking logic that required profits sufficient to support ongoing operations and fulfil fiduciary obligations.1 However the microfinance organizations faced a double challenge in terms of having to survive as new ventures while striking a delicate balance between the banking and development logics they combined so as to avoid “mission drift.” Basically it is a hybrid organizational structure that is being talked about in case of Microfinance organizations. Microfinance being a new type of hybrid organization cannot rely on any “ready-to-wear” model. Research has shown that in this context, tensions and conflicts among logics may abate as one logic gains dominance over others2. The origin of microfinance is generally credited to the Grameen Bank of Bangladesh under the leadership of its famous Nobel prize winning founder, Mohammed Yunus, who characterizes the mission of microfinance organizations as providing the poor—whom he describes as “natural entrepreneurs”—with working capital with which they can realize their entrepreneurial instincts (Bruck, 2006). Before the Microfinance industry came into being, small loans were only available from informal lenders who were basically loan sharks and pawnshops at annual rates well over 100 percent because conventional financial institutions such as big banks were interested in serving larger borrowings and didn’t find it commercially viable to enter the small loans market. However initially the concept of microfinance was totally based on the “not for profit” model undertaken by NGOs. However in the early 1990’s there was a gradual departure from the non-commercial model to a more commercial structure as there was a realization that the lending to the poor could be managed as a self sustaining endeavour by charging interest rates sufficiently high to cover the cost of lending, and in insisting on loan repayment by creation of self interest and self reliant groups. This was primarily needed in order to keep pace with burgeoning demand from poor for loans. The newly created commercial microfinance organizations continued to provide loans to low-income entrepreneurs in the manner of NGOs through targeting individuals who were disenfranchised3 from the for-profit financial sector; but by becoming financial intermediaries, the new organizations incurred fiduciary responsibilities to depositors and investors3. Table 1

Source: Otero and Rhyne (1994)

The interest in microfinance got further boost with a Micro Credit Summit held in February 1997 in Washington, DC which was the first step of a decade-long campaign that sought to create a delivery target of credit for self-employment by 2005 to 100 million of the world's poorest families particularly the women. In her address in the 1995 Micro Credit Summit Meeting Hillary Clinton wrote: “Micro enterprise is the heart of development because micro-enterprise programmes work- they lift women and families out of poverty. It is called 'micro' but its impact on people is macro; we have seen that it takes just a few dollars, often as little as $10, to help a woman gain self-employment to lift her and her family out of poverty. It is not a handout; it is a helping hand.”

Table 2-A comparison of...
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