Microfinance

India microfinance crisis by the numbers

Finally a reporter who actually attempts to explain the objective facts on the current microfinance crisis in the Indian state of Andhra Pradesh.

Microfinance by the Numbers by Eric Bellman

Here are a few highlights:

  • Default rates by borrowers were ~2% before the politicians intervened and now have risen to 50% since they instructed borrowers not to repay their loans
  • On a per capita basis, treatment there are 5-10x fewer suicides amongst microcredit borrowers than the general Indian population
  • Upon closer investigation, it appears that loan sharks, landlords and even family members are more to blame for the suicides than the microcredit companies
  • The interest rate for microcredit loans (24-30%) is the same as the local rate for credit cards (30%) which has never been controversial
  • Even though government schemes like self-help groups offer heavily subsidized 3% loans to women, why is there so much demand for microcredit (hint: loans insufficient, not available or require bribes)

Net: If the government continues this harassment of MFIs and imposes unreasonable regulations, the current microcredit borrowers will no longer have access to these financial services and will either have to go without, or more likely be back as clients of the local loan shark at 150-300% interest rate plus their well-known collection techniques.

3 thoughts on “India microfinance crisis by the numbers

  1. Comparing MFI loans to credit cards?

    “Microcredit borrowers will no longer have access to these financial services” In andhra?

    You must be kidding me!

    For Micro-Finance survival, they need to muzzle their Spin Doctors and listen more to their High Priest

    A string of suicides in Andhra Pradesh that put micro-finance under the spotlight, triggered a backlash because of which, MFIs found themselves reduced to fighting for their basic survival. No surprise here to find a variety of spin-doctors functioning as their apologists, fending off and neutralising any criticism that the industry faces currently, almost oblivion to the fact their support is to a slow sinking Titanic. Two of the most significant spins in this debate are those related to suicides and interest rate. In this post, we bust these spins.

    “I believe in Schumpeterian creative destruction. Its time has come. The present MFI model has to go…. It wasn’t just about giving loans. It was also about creating livelihood mechanisms, which would build capacity among the poor to repay their loans easily, and leave them better off than before”

    This is Economic Times quoting Vijay Mahajan, considered the high priest of Indian microfinance suggesting that either MFIs change their business models or go bust.

    Read more: http://devconsultgroup.blogspot.com/2010/11/for-micro-finance-survival-they-need-to.html

    Like

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