Whose Risk is it Anyway? Microfinance and Client Vulnerability

Authored by Aloysius P. Fernandez in 2010, provides a critical analysis of the microfinance sector, specifically focusing on the risks borne by clients rather than just the institutions themselves. The author distinguishes between two primary groups of clients: the poor who need subsidised long-term support for diverse livelihood activities, and the non-poor who require credit for non-farm growth but lack access to formal banking. Fernandez argues that the Microfinance Institution (MFI) business model, driven by venture capital, high profits, and quick exits, is inappropriate for the poorest group as it significantly increases their risk, suggesting the Self-Help Group (SHG) model is better suited for them. The paper further contends that the rapid growth and lack of adequate regulation of MFIs, coupled with high interest rates and pressure for speedy disbursements, have inadvertently increased the vulnerability of both groups of marginalised clients by integrating them into the high-risk international financial system.