Initially micro fiance projects were run by governemnt agencies and charities, but in recent years private equity firms have waded into the market and in recent years the microfinance business is a 65 billion dollar global industry.

Private equity firms are now tempting private money into the market by offering a 12 percent return on investment, and through the 1990s, effort was made to connnect private money to the poor who had proved they were credit worthy following a decade of government and charitable run microfinance schemes. Private money makes up one third of microfinance

Interviews a representative of one of the larger private microfinance firms operating in India – Spundana – which offers loans to the poor at a 37% interest rate – This particular company lends 3.5 bn to 5 million households

The company is mainly banrolled by HSBC – to whome it pays 9-10% and claims that the 37% interest rates are so high because it costs more to offer loans in slum areas – in terms of collecting payments and monitoring and that the rates are justified because a street level money lender would provide loans at 50-70% – this is no excuse of course, when you have the power not too.

The problem with these private financiers, rather than the state or charity schemes that initially ran microfinance projects is that they may give groups or borrowers more money than they can realistically pay back, they thus become tied into taking out a second and a third loan paying back high interest.

The programme visits a Slum in Hyderbad where 9 in 10 people have a microfinance loan and looks at a few case studies –

One success story, a woman borrowed the equivelent of £100 pounds and spent it on setting up a fish business, then on the back of that got further loans and invested the money in getting her disable son training as a mechanic, who then paid off the other loans. They now earn 800 rupees a month – about 100 pounds – double the local average income.

Other people, however, spend their microfinance loans on other things – such as sending children to a private schools or televisions .

Another case study of someone who poisoned themselves with pesticide because the 1.50 a day he earned wasn’t enought to repay the 200 pounds he borrowed to buy a Buffalo – that never gave milk

An MIT study of 104 slums in Hybrdad found that micro finance had a limited impact on women’s empowerment –

The study found that those who were already entrepeneurial set up successful businesses with their loans, like the case study of the woman with the fish business, but many just bought up consumer goods – and all micro finance ends up doing is to help the poor do more with the money they have – rather than lift them out of poverty.

Finally, the programme loooks at more recent developments in microfinance – the latest  is to allow the poor access to global financial services – such as mortgages and insurance – and there are some cases of large families in India pooling their resources and getting out of the slums by buying houses – which you can get for £10 000 in parts of India and then paying back 140 pounds a month – the problem with the case study investigated was that the woman who had done this who was interviewed was illiterate and so didn’t even know that she was paying around 10% interest on her mortgage.

Ultimately, the private companies make the valid point that there is simply not enough charitable funds to sort the poor out – and so private microfinance is vital. However, without a regulatory framework in place, this looks set to be another situation where western capital gets irresponsibly invested in those who cannot afford to repay it – could lending to the ‘middling poor’ be the next investment bubble???