Close Field Partner Relations Key to Ethical Lending
Microfinance has been the subject of healthy debate recently. Critics have suggested that loans are often not invested in business but used to cover basic consumption needs; that borrowers are not given sufficient guidance and training to make the most of their loans; and that microfinancing tackles only one of the many interlinked causes of poverty.
Irresponsible lending is harmful
Recent high profile cases in India and Bangladesh revealed local microfinance institutions luring borrowers into excessive debt and loaning to risky businesses without offering training and support. This resulted in bad loans and, in some case, suicide. These were highly emotive cases, leading to extensive media coverage and critics making general statements about the microfinancing sector instead of questioning individual cases and trying to understand where these microfinancing efforts had gone wrong.
A recent Overseas Development Institute paper concludes that the essential problem of bad microfinancing is the lack of institutions that are able to promote productive entrepreneurship. In all the negative cases there was a clear lack of community-led organisational support, learning and upgrading.
Holistic approach and close co-operation
Despite the bad press around the microfinance sector, there are genuine organisations working hard at keeping the borrowers’ best interests at heart. Deki is one of them. We are conscious of the criticisms and controversies surrounding microfinance practice and actively take measures to avoid dangerous lending. By working closely with our field partners we ensure that all borrowers and their businesses are carefully vetted to make sure they are a suitable recipient for a loan. The borrower is then given the necessary training needed to run their growing business with efficiency, for example developing skills such as literacy and book keeping. As a result borrowers are not only helped to develop a sustainable business and income source, but also to repay their loans without being weighed down with debts. To date our repayment rate is 100%.