Microfinance hits mega problems

News that Vikram Akula, the Indian founder in 1997 of SKS Microfinance, has been forced out of office, has sent a shudder through the sector. Losses of £74m for the first six months of 2011 by the biggest micro lender in India were bad enough. Investors including George Soros were not impressed by the fall in the share price of 90%. Worse still were the accusations that Mr. Akula was under pressure for floating his company on ethical grounds. He should not be profiting from the lending to the poorest people.

However the turmoil in the world of microfinance goes much deeper. The founder of the movement, and Nobel Peace Prize winner, Muhammad Yunus, who also set up Grameen Bank which he established in Bangladesh, initially to help rural women, has been forced out of his own organisation. This may have more to do with his founding, in 2007, of an opposition political party though.

In Britain there is a modest microfinance operation operated by the Co-operative movement in association with CARE International Uk (see www.lendwithcare.org). It is using a form of crowd funding which many (including the promoter of Enterprise Britain) believe could have a significant impact on the funding of small businesses in the UK.

Across the Atlantic in the US the House of Representatives has passed the Entrepreneurs Access to Capital Act (HR -2930) which makes the raising of capital for SMEs easier through crowd funding. It allows businesses to sell unregistered securities for up to $2m. Individual investments are limited to $10,000 or 10% of the investor’s annual salary. Intermediaries will need to register with the SEC and will check out issuers.

Crowd funding is growing in the UK. In publishing authors are trying to raise capital to write their books. A number of films have been backed by crowd funders. The Business Angel networks are likely to play a key role in the industry’s development. There are certain European organisations showing an interest to be involved.

It is hoped that the microfinance problems in India are avoided in the world of crown funding. The world of the SMEs desperately needs more innovation.

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