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Microcredit and AVIS Bank

Helping to alleviate poverty is the key aim of any individual or group involved in development. The classic diagram of the poverty trap is frequently used to explain why it is so difficult to break out of the cycle of poverty.

Low productivity means that there is no money to invest in those things that could increase output. Banks will not lend even the small amounts required to invest in the means to increase productivity because those on such low incomes can provide no security against the loan. The only money available is often from local moneylenders who charge exceptionally high interest rates that only make the situation worse.

In the last 30 years there have been some attempts to change the situation and microfinance is a term used to describe how financial services can be made available to poor people. It has received a lot of support from people involved in international development because it has been seen as an important way of helping millions of people out of the poverty trap. However recent criticisms by some politicians and development experts mean that the advantages and disadvantages of microfinance have been the subject of many discussions and caused many arguments.

 

AVIS BANK microcredit principles

  • Poverty is not created by poor people. It is created by the institutions and policies which surround them. Loans offer people the opportunity to take initiatives in business or agriculture to make earnings that enable them to pay off debt.

  • Poor people have skills that remain unutilized or under-utilized. It is not the lack of skills that makes them poor.

  • Charity is not an answer to poverty. It only helps poverty to continue. It creates dependency and takes away an individual’s initiative to break through the wall of poverty. Utilizing the energy and creativity in each human being is the answer to poverty.

 

Who gets the loans?

One of the early principles of microcredit was lending to individuals. This has gradually changed because the cost of monitoring loans and enforcing repayments is high and most loans are now made to groups because the costs are lower when they are spread among groups rather than individuals.

Each microcredit provider may have its own model for lending. In India, NABARD (National Bank for Agricultural and Rural Development) funds self-help groups that are made up of 20 or fewer members from the poorest castes and tribes, the majority of them women. Each member is expected to save a small amount a month which goes into a group fund. Members can borrow from the fund for a number of reasons and if the group shows itself capable of managing its funds they can borrow extra funds from a local bank to invest in small business or agricultural activity.

It is a common feature of microcredit institutions that most borrowers are female. Women make up around 75% of all microcredit recipients worldwide. This is not just because women form the majority of poor people in rural areas but also because they are seen as having the biggest influence in attempting to reduce poverty and are more reliable in making repayments. Lending to women has become a core principle for most microcredit organizations – indeed, some lend exclusively to women.

 

AVIS BANK microcredit principles

  • Poverty is not created by poor people. It is created by the institutions and policies which surround them. Loans offer people the opportunity to take initiatives in business or agriculture to make earnings that enable them to pay off debt.

  • Poor people have skills that remain unutilized or under-utilized. It is not the lack of skills that makes them poor.

  • Charity is not an answer to poverty. It only helps poverty to continue. It creates dependency and takes away an individual’s initiative to break through the wall of poverty. Utilizing the energy and creativity in each human being is the answer to poverty.