Tuesday, November 17, 2009

Microfinance: Amanah Ikhtiar and RM1 billion

I've previously written extensively about microfinance or microcredit and I have highlighted the good work done by Amanah Ikhtiar in this area.

What I haven't highlighted is that Malaysia's approach to microfinance/microcredit is what I characterise as an "institutional approach" where microfunds are disbursed to borrowers in a manner not much different from a regular bank (who are also in the microfinance/microcredit game...albeit reluctantly).

With RM1 billion allocated from the Malaysian Government for lending in 2010, Amanah Ikhtiar will be a busy organisation.

I wonder if the impersonal approach used by Amanah Ikhtiar in dispensing microfinance/microcredit may result in higher defaults and delinquencies than the original Grameen Bank approach which emphasised community-based microfinance/microcredit.

In its original guise, microfinance required groups of five community members to receive funding and they acted as a loose collective, having vouched for each other. This minimises defaults and delinquencies because other members of the group will rally around any ailing member. And, each member would not want to risk the ire and opprobrium of his/her community by having defaulted.

This was a fail-safe feature in Grameen Bank's lending paradigm.

Does Amanah Ikhtiar have this feature in mind?

If not, what is the provision that Amanah Ikhtiar plans to make on loan defaults? 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50% .... when do alarm bells start ringing?

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