In India, microloans are usually disbursed to poor women whose total family assets are under 20,000 rupees ($445) and whose monthly income is smaller than 350 rupees ($7.88). Yet microfinance initiatives have a phenomenal repayment rate averaging more than 95 percent, better than the best commercial banks in the world.
There are an estimated 3,000 microfinance initiatives serving the world’s poor but a scarcity of money has limited their expansion. More than 70 percent of them serve fewer than 2,500 borrowers each.
Only 30 microfinance initiatives have grown to serve more than 100,000 poor borrowers. One of them, the pioneering Grameen Bank in Bangladesh, reaches more than three million borrowers currently. A total of $4 billion has been disbursed since Grameen started giving loans in 1976 with seed loans starting as small as $35.
The majority of the microfinance initiatives struggle to find grant financing and stay in business. The financing they do receive is often in small grants of $5,000 to $50,000. The ventures are often viewed as risky propositions for loans from commercial banks.
Some microfinance projects are tapping into commercial financial institutions. In India, the Grameen Foundation is starting a company called Grameen Capital India in partnership with Citigroup and India’s leading ICICI Bank to help microfinance initiatives get guarantees for financing.
The article also looks at Vinod Khosla’s interest in microfinancing.
As I have been writing in my “As India Develops” series, microfinance needs to be complemented by other solutions, especially access to markets.