Microfinance

A compendium of voices on the Andhra Pradesh Microfinance crisis

By Philip Mader

As India celebrates Diwali this week, the debate about how to deal with microfinance has calmed a bit. But since I wrote up my analysis of the root causes Andhra Pradesh showdown (part 1part 2), the news has taken few further twists. Here’s an update:

  • Vijay Mahajan, Chairman of BASIX and speaker for the MFIN industry organisation, stated on TV: “Alot of the reasons for invoking the ordinance were the creation of the microfinance sector itself. There has been a certain degree of wrongdoing by our sector. And as the president [of MFIN] I am the first one to accept it, I want to do it on record.”
  • The interest rate disclosure requirement under the new microfinance ordinance in AP has uncovered interest rates far higher than previously reported – up to 60.5 percent. I wish I was surprised; but MFIs usually neglect to factor compulsory savings, fees, etc., into their publicly quoted rates.
  • The AP government has published the complete list of complaints of malpractice and suicide launched against the MFIs – see it here.
  • A massive borrower database in AP will go on-line in January, in an effort to clear up the mess.

Meanwhile, India’s vibrant media and civil society have been grappling with the issue, as are some American media. The rest of this post is a digest of the most provocative, insightful and intelligent commentary I’ve seen on the subject.

MFIs should welcome regulation. Editorial, The Hindu: “It is obvious that the MFIs face an extremely challenging environment. They should welcome uniform regulation, more transparency in their operations, particularly interest rates, and governance. They are providing a valuable service, and only by being transparent and sprucing up their governance can they acquire legitimacy in the financial mainstream.”andhra suicide microfinance

Work together. APMAS unpublished comment to NABARD: Over the past 2-3 years the [mal-] practices have become more serious as the MFIs have been interested in more than 100% growth per annum and giving more than 20% return on equity. … Of course the MFIs have been in the rat race and have been fully in the profit maximizing mode. … There is a need for a well-defined system of regulation & supervision. If there is no regulation, the poor women will be indebted and result in extreme steps like suicide. … Government of India, RBI, NABARD, Banks and State Governments must collectively evolve an effective regulatory and supervisory system.

Read the rest of the article on Governance Across Borders

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