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This article is more than 2 year old.

India’s microfinance sector a bright spot amid economic slowdown, says Nobel laureate Muhammad Yunus

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India’s microfinance sector has not been impacted by the economic slowdown and is in fact ready to double its size in the next five years, says Nobel laureate and founder of Grameen Bank of Bangladesh Muhammad Yunus.

India’s microfinance sector a bright spot amid economic slowdown, says Nobel laureate Muhammad Yunus
India’s microfinance sector has not been impacted by the economic slowdown and is, in fact, ready to double its size in the next five years, says Muhammad Yunus, Nobel laureate and founder of Grameen Bank of Bangladesh.
Yunus, who is one of the pioneers of the microfinance concept, said microfinance with its ability to turn the poor into entrepreneurs has a huge role in strengthening the economy. Rather than providing cheap labour to cities the rural poor can begin selling goods to urban areas with the help of microcredit, he said.
According to the Bharat Microfinance Report, India’s microfinance sector grew by 40 percent and could cross Rs 250,000 crore in GLP (Gross Loan Portfolio) by March 31, 2020. The report also said the number of microfinance accounts grew by 21 percent in FY’19.
The Bangladeshi banker and economist praised the RBI for strengthening the microcredit sector in the country but said that it is time to give microfinance institutions the ability to take the deposit. “Eighty percent of the money for microfinance organisations comes from conventional banks. Microfinance institutions should be given the ability to take deposits and use it for rural people. They should be allowed to create a local economy,” he opined.
Reacting to reports which say that only 20 percent of the central government’s Mudra (Micro Units Development and Refinance Agency Ltd) loan beneficiaries were using them to start new businesses and also highlighted the high cost of job creation, Yunus said young entrepreneurs need to be given more time. He also said that microfinance was an ‘entrepreneurial generation’ and not an ‘employment generation’ exercise.
However, he cautioned against government lending in the microfinance space. “Government and lending do not go very well. Political entity lending money will eventually get politicised and politicisation of lending will be a deviation from the purpose,” he said.
The economist emphasised that the private sector should be encouraged to create microfinance institutions. He also said the government could even make it mandatory for new companies to create a social business fund as a condition for starting the business.
The Bharat Microfinance Report highlights Jammu and Kashmir, Andhra Pradesh and Telangana as areas with lowest microfinance penetration. Yunus urged the Indian government to make sure that all Indian states are adequately covered by microfinance.