The end result is the deep suspicion which the poor would have about the entire microfinance industry. The authorities too would view microfinance as a destabilising and fraudulent element in the financial system. This leads to a credibility issue and a reputation risk in microfinance industry. Once the industry loses its reputation, it is difficult to regain the same irrespective of whatever is being done by some genuine microfinance practitioners. The damage to the industry is done by some “black sheep” who are not controllable by other genuine performers. In this manner, the quick returns are earned by “ill-willed” practitioners, but the social cost has to be borne by the entire industry. Hence, the major challenge faced by microfinance industry today is to save itself from the spurious micro-financiers. Who is a poor person? The poor are normally defined by reference to income level or calorie intake or the level of opportunities available. All these definitions represent some aspects of the poor which are important. Yet, they do not accurately depict the real nature of the poor. A poor person is a person who is unable to assess the risks faced by him and take the required mitigating measures to avoid them. The risk factor is more suitable to identify the poor, because the poor have to operate in a market which is full of risks. If he can successfully wade through the risks, he could succeed in the market as well.
If he fails, he would remain a poor forever having to depend on outside help. Greed is the killer Not many in a society would be able to correctly assess the risks faced by them. If they are unable to assess the risks, then, they cannot expect to take risk mitigating measures as well. Many reasons can be adduced to this general failure of individuals to assess risks appropriately. They may not have been taught to assess risks. Or, their risks would have been assumed by others, chiefly the government, and as a result, the moral hazard behaviour would have prompted them to take unnecessary risks. Even when they are educated and there are no opportunities for moral hazard practices, they may still take risks purely guided by their extreme greed. When the greed overtakes the rational mind, the individual may be blind to what he would get if the scheme fails. People belonging to both rich and poor categories fall into this last category. It is these people who normally fall easy prey to cunning tricksters who are planning to strip them of their wealth by making false promises. All that is necessary is to arouse, by means of a well-orchestrated marketing plan, their greed. The spurious micro-financiers use person to person contact method to outreach potential victims and lure them to leave their wealth in the hands of total strangers.