June 18, 2009
The Dangers of Overlending in India
By David Roodman Tags: debt trap
Siddhartha Chowdri, ACCION International’s Country Manager for India, has posted a warning on the blog of the Center for Financial Inclusion about the dangers of overheated competition and growth in microcredit in India. Some people, he says, are borrowing too much, from too many microfinance institutions (MFIs). The resulting situation, as in Andhra Pradesh a few years ago, is politically combustible. If it ignites, attacks on the lenders can force them to withdraw, cutting off access to credit:
So far MFIs are mostly blaming the political elements and the clients. Few understand (or admit) that in fact this is a risk of the business that we are in and that in many ways the MFIs are to blame.
This is a scary moment for the industry with its root cause being insufficient systems for tracking client indebtedness, unfettered competition, irrational growth expectations, and little analysis and understanding of the client’s ability to repay.
June 23, 2009 at 12:14 pm
This has been going on in Bangladesh for many years. The locals calls it ‘overlapping’. I wonder if microfinance is not beneficial why would poor people borrow from several organizations? Could it be that the feel credit constrained and need more credit than is being provided by one organization, lack of benefits revealed by scientific social science notwithstanding?
Bolivian microfinance industry did face the political crisis mentioned in the blog. Here is a link to a paper by Beth Rhyne
http://216.235.201.233/NETCOMMUNITY/Document.Doc?id=58