This story is from October 4, 2006

Gates Foundation eyes micro finance

SRIKALA BHASHYAM / TNN / Oct 4, 2006, 23:43 IST

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Driving this change is the Bill & Melinda Gates Foundation which has decided to fund a pilot project conceptualised by Unitus.

BANGALORE: Three years from now, micro finance may not exist in its current form. There will probably be more products for the urban and rural poor and at more competitive interest rates.
And driving this change is the Bill & Melinda Gates Foundation which has decided to fund a pilot project conceptualised by Unitus, a funding agency for the micro finance sector.
Geoff Davis, president and CEO of Unitus, said his company has taken up an efficiency innovation project to reduce the cost of operations and improve the functioning of micro finance across the globe.
The $2 million project is expected to come up with a report in three years. The company has roped in professionals from sectors such as management consulting, credit rating and banking.

According to Davis, there has been little product innovation in the 30-year-old micro finance industry globally with most lenders focussing on credit access to the economically underprivileged with a single loan product.
This is for the first time that the Gates Foundation is associating itself with an organisation outside the healthcare sector.
While micro finance has gained acceptance as a concept and has encouraged lenders to expand their loan books through this channel, cost of operations continues to be a worrying factor.

Industry experts estimate the transaction cost to be in excess of 20% which in turn has pushed up the borrowing cost for customers.
In fact, the borrower ends up paying an interest rate of nearly 30% in certain instances. Sandeep Farias, country director (India) of Unitus, says if the pilot project can reduce the cost by 5-10%, it would be of great help.
Globally, micro finance is accessed by 4 billion households with an average loan size of around $100. In India, around 100 million households are estimated to be accessing micro finance, their average loan size being Rs 5,000.

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