Monday, July 28, 2008

Microfinance: Govt not doing enough!

Further to my earlier, rather prolix blog entry on microfinance (read Time to step up microfinance programmes), the M'sian banking system is beginning to mobilise on microfinance products. In the Star Online report entitled Banks upbeat on micro-financing, the focus of banks appears to be on micro-enterprises which are defined as business entities with less than 5 full-time employees and annual sales of less than RM250,000.
Among established financial institutions, the market leader in microfinancing is Agro Bank (formerly Bank Pertanian). It's range of microfinance products are targeted mainly at agro-based activities; check the list here.
Commercial banks are NOT able to provide values-based microfinance
While we should be heartened that the banks share the view that during this period of economic challenge, microfinance is an area to focus on, one cannot help feeling that the established banks like Public Bank and AmBank do not really have the heart nor stomach for microfinance. Their goals are so materially different from Grameen Bank's values in relation to microfinance.
So, we can expect very stringent criteria for microfinance applicants at these commercial banks. While we cannot criticise the risk management criteria of these commercial banks, we have to ask the federal government how genuine microfinance applicants who fail the stringent criteria of the commercial banks can receive any microfinancing. Besides, commercial banks are only targetting small and medium enterprises (SME) only, not the micro-enterprises which are really one-person kari pap and kueh sellers who also need some funds to meet rising costs of production.
Better delivery system needed for microfinance
In other words, if the federal govt takes the view that the effective distribution channel for microfinance is through commercial banks, then the federal govt is approaching the principles of microfinance from a very dubious and cynical starting point. And, left to commercial banks, the RM1.2 billion allocated for SME financing, which is wrongly defined as microfinance, will not reach the truly needy micro-enterprises in Malaysia.
What the govt should do
Instead of wasting time with politics and schmoozing with commercial bankers, the 2nd Minister of Finance, Minister for Agriculture and Minister for Domestic Trade and Consumer Affairs need to get together to organise a better delivery system for microfinance to reach micro-enterprises, mainly in the rural areas and smaller towns.


etheorist said...

Banks have a bad relationship with the small person. He has learned that if he could run away from his debt, he would...and he has been getting away with it. This is why banks justify such high interest rates for credit cards.

The idea in microfinance is to abandon the above bad relationship altogether, namely, by doing away with the banks and the he. The focus in microfinance is the project, which could be tailoring, weaving, simple food processing. The dispenser of the microfinance should be people or organisation who could give business advice, finance management and moral support. Lend to the mother and not the wife, i.e., lend to the person who cares about the little children around and want to succeed. This is the way of microfinance.

Sorry, I got carried away. I meant to compliment you on your new JFK quote - which should is memorable.

de minimis said...

"Usury" wasn't that the description of the activity that we now call banking? You certainly are clear about the core values of microfinance. It's consistent with EE Schumacher's principles in 'Small is Beautiful".

Thanks for the compliment on the JFK quote, "Forgive your enemies, but never forget their names". I seem to recall that Golda Meier (former PM of Israel) had a similar quote that went something like, "Forgive your enemies, but never forget them".

Anonymous said...

I trust that Malaysians had been
overloaded with loan repayment burden.extra loan of such will kill more malaysians. BNM had been linience to the commercial bankers on credit cards issuance.Why give a credit card limit of RM5,000 when you already block the card for a mere unpaid amount of say RM250?Might as well issue only the charge card?
On micro credit,would the Govn like to put more hawkers on the road sides or at the corridors of the shops in the town? Why give micro credit when you do not even have adequate places to trade?couldn`t the govn set up more hawker centres or pasar malam centre or fruit stalls?Besides, if more traders are around, food prices will go down to a reasonable level.Besides, can the criteria for micro credit be made public?If you leave it to the bank, they will ask how much of FD you have?