CEME Inclusive Commerce Blog Hosted by the Council on Emerging Market Enterprises (CEME), The Fletcher School


Great Intellicap White Paper on AP Situation

SKS chief Vikram Akula cancelled his scheduled visit to Tufts University.

He was going to talk about this new book, A Fistful of Rice. It’s unfortunate that we won’t get to pick his brain regarding the debate generated by SKS’ recent IPO, and about the developing situation in Andhra Pradesh (AP).

Meanwhile, two pieces worth checking out:

If we may be permitted a whimsical moment, the Indian microfinance story offers an irresistible parallel to a familiar Bollywood plot: in the Indian microfinance potboiler, the SHG model is the elder brother in an Indian joint family while the MFIs play the part of an aggressive younger brother. The elder brother struggles to uphold tradition and retain his leadership position, while the maverick younger brother tries to break free (using new financial and technology tools), often overenthusiastically, and sometimes recklessly, in pursuit of the same goals. This script bears many similarities to a classic Bollywood family drama. Unfortunately, the conflict between the two brothers often leaves the family destitute. As the AP microfinance drama plays out in the national media and the world watches, it is mainly the poor, forced into choices not of their making, who will suffer.

This paper strengthens the uneasy feeling many were having – that the regulations are more good politics than good policy. Barring door-to-door servicing – really?

  • An Indian Express article, Andhra’s small-debt trap, that reports on the reality faced by micro-loan borrowers in a village in AP. Quite important to keep the caveats on media reports mentioned in the Intellicap White Paper in mind when reading this. Some of the anecdotes mentioned in the article are quite disturbing – fearful female borrowers assembling outside their houses at 7 a.m. sharp for the loan recovery agents to show up and having to pay late fees if they were even 5 mins late, 147 of the 150 households having multiple loans, and the men stopping going to work as farm laborers on getting loans instead of redirecting income towards investments.

Posted by Ashirul Amin

Filed under: Microfinance Comments Off
Comments (1) Trackbacks (0)
  1. MFIs argue that they need a spread apart from all costs to provide for contingencies and growth. Fine but the moot question is how much should be this spread.

    MFIs argue that economies of scale and competition will drive interest rates down. This remains only a theoretical argument. “Mexican microfinance institutions charge such high rates simply because they can get away with it”, said Emmanuelle Javoy, the managing director of Planet Rating, an independent Paris-based firm that evaluates micro lenders!! If at all, the average Indian MFI interests rates appear more benign than in Latin America or Nigeria, then it simply because other than factors internal to the MFI industry, the sector faces strong competition from governmental and NGO SHG micro-saving programmes in the absence of which, these MFIs would have formed a cartel. Past angry public and government reactions that resulted in a backlash against them, which included the arrests of MFI top leaders, like Uday Kumar of Share Microfinance Ltd as in 2007, keeps their profiteering impulses under check.

    The sooner MFIs are seen as profit enterprises, the better. The longer they pretend they are pro-poor, the longer they discredit the NGO sector that gave birth to a Frankenstein. By 2014, they target to reach 110 million borrowers. Remarkably, despite two decades of operations, if statistics are to be believed, these MFIs only reach just 20 million people in the country, a good proportionate of them, multiple counted. Yet, they succeed in gaining an attention, so disproportionate to this miniscule reach. Act now to prevent they becoming an epidemic in the country. Act now, when they are most vulnerable.

    And how do know they are vulnerable? Because Vijay Mahajan, the father of MFIs in India tells us so:

    “We are facing collapse. Unless something changes on the ground, the industry as we know it is basically gone. ”
    Mahajan, we have news for you. The day when the likes of you are gone, that will be the turning point for the fight against poverty!

    Read More: http://devconsultgroup.blogspot.com/2010/10/whats-wrong-with-micro-finance.html

Trackbacks are disabled.