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5Sep/12Off

MicroSave naturally experimenting in AP

Natural experiments are great for the social sciences, and has been exceedingly rare for microfinance. Then the AP crisis came along, and caused the kind of change in circumstances that make for just such an experiment.

Basically, microfinance institutions beat a hasty retreat, writing off their outstanding loans as losses to a large part. This caused a pretty significant vacuum in liquidity providers in local economies. Guess who filled it up. SHGs, to a certain extent, sure. But this was also the perfect opportunity for the traditional archenemy of microfinance – moneylenders – to make a roaring comeback!

Relevant section from the abstract:

Both studies validate the fact that the members of the community face issues raising credit in the absence of MFIs. Members of the community have reduced their spending on important aspects such as health, education and business because of non availability of adequate credit from alternative sources. Moneylenders are having a field day with the absence of MFIs. Members of the community are falling back to moneylenders who charge usurious rates of interest to meet their credit needs.

Here’s the full report: Andhra Pradesh MFI Crisis and Its Impact on Clients

And a related policy brief: What Are Clients Doing Post The AP MFI Crisis?

Posted by Ashirul Amin

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