Women at a microfinance meeting in India. Photo: Mckay Savage (flickr)

Microfinance was once the poster child for poverty alleviation. Hailed as an alternative to dangerous loan sharks, it quickly gained momentum and support from governments and NGO's alike. But lately the microfinance glitter has been wearing off, and this once-globally praised idea has come under intense criticism. Some governments have even encouraged their citizens not to pay back their loans, causing lenders to experience a drop in payback. This is most notable in the Southern Indian state of Andhra Pradesh, where repayment fell from almost 100 percent to a mere 20 percent.

While much of the backlash has focused on India, the same problems could strike any community utilizing microfinance, making India an important lesson to learn from.

Andhra Pradesh, which has a population of almost 80 million people, accounts for one third of India's microfinance loans, reports The Economist. And it is in Andhra Pradesh where microfinance is taking the most heat.

Local governments have pointed the finger at microfinance institutions (MFIs), blaming them for farmer's suicides that occur as a result of severe debt, and castigating them as profiteering loan sharks. The motivations of these politicians, however may be more political than moral. Many of them have utilized the situation to gain votes from the poor, suggests The Economist article. These politicians may also see MFIs as competition to government-installed programs and their own popularity.

Microfinance has also come under fire in Bangladesh where Muhammad Yunus -- the father of microfinance -- was facing allegations of illegal financial transactions. The accusation made by a Norwegian film maker has since been retracted, but the prime minister of Bangladesh still seized the opportunity to damage Yunus' reputation. This is important considering much of her motivation in doing so could have to do with Yunus's proposal to start a political party, despite the fact that this party never materialized according to The New York Times. However, NPR has speculated that despite the attention this case is getting, it will not hinder Bangladesh's use of microfinance loans.

Other Latin American countries such as Nicaragua and Bolivia have also become entangled with the negative side of microfinance. And politicians in these countries have made similar statements to those made by their counterparts in India, encouraging the poor not to pay back their loans in order to gain support from the lower classes.

In truth, microfinance is not a magic wand. Like all financial institutions it is wrought with the ups and downs of the market. And any situation involving loan and credit is dangerous, especially when people are allowed to borrow irresponsibly. The failure of microfinance in India is largely due in part to MFI's shifting their focus from non-profit to profit-making industries and the corruption that follows thereafter. In addition to this, microfinance in India expanded way too quickly without the experience or infrastructure to support it. The boom led to landslide profits for microlenders but disaster for their borrowers.

It's important to remember that microfinance is just a tool that can be used in both positive and negative ways. And as The Economist notes, it is neither miraculous nor detrimental:

In fact, research suggests that it [microfinance] does work — for some people some of the time, as you would expect. It is not a magic bullet, but nor is it intrinsically harmful.

Still there is much hope for microfinance, but it needs strict monitoring and legislation to ensure that corruption and profiteering to not deter it from the original goal of poverty alleviation.

Village women in parts of Andhra Pardesh, India are using a local radio station to educate their communities of best practices in health and farming. Photo: Kris Van de Vijver (flickr)

One of the most basic forms of technology — the radio — is helping women in rural parts of India's Andhra Pradesh educate other women in their communities.

Deccan Development Society (DDS), a grassroots non-profit based in Andhra Pardesh, works with some of the poorest communities with programs focused on health, education, food security and other methods of empowerment for women. Last October, DDS developed a community radio station that broadcasts daily interviews with local village women throughout the state.

Most of the women interviewed are poor, uneducated and illiterate. Many of them work in the fields or are involved in some form of manual labor in their villages. Despite their limitations, these women are able to use the radio to discuss their work and community issues that may help their peers. For example, discussions on which herbal medicines to use for livestock and efficient farming tools are helpful for other women in the village and surrounding areas. The women are paid for their contribution which allows them to feel a sense of empowerment by earning their own money.

BBC News documents the initiative by DDS and spoke to one of its founders, P.V. Satheesh who explained the benefits of the initiative.

The local radio station has helped women in the region become more confident…the idea was to get local voices to talk to the local people on issues that were close to their hearts. It is a means of asserting themselves in this rural setting, of finding a voice and putting themselves in greater control of their own destiny.