If microfinance gurus are to be believed, then the sector is unlikely to be affected by the global economic crisis. Vikram Akula, founder of SKS Microfinance, said at a recent microfinance conference in Delhi that the "economy of poor is decoupled from global crisis". The three-day Microfinance India Summit ended on Thursday.
Akula said that there has been less impact of the global financial turmoil on the poor, chiefly because micro enterprises are not dependent on global consumption patterns. However, the surplus that these enterprises generate has decreased.
French economist Jacques Attalli also reinforced Akula's view: "At the moment, there is no effect on micro-finance projects, as there is no link right now with the global crisis." Attali remained uncertain about the future though.
However, a few others preferred to disagree with the view. Eric Savage, MD, Unitus Capital, believed that rising interest rates in the downturn have decreased the outreach of microfinance to the clients. As the liquidity of large banks diminishes, MFIs are worried about their ability to provide loans to their customers.
The demand for micro loan sees an increase in the difficult times as the financial crisis coincides with food and fuel price fluctuations, raising the cost of both inventories for the business and of basic necessities for the family.
Vijay Mahajan, Chairman, Basix, a microfinance institute, added that the inflationary impact would be more for the poor in the economic downturn. MFI lenders admitted that the wider financial crisis has yet to have a significant impact on its borrowers but expect potential turmoil.