Microfinance: Lessons from a Crisis

Examines the causes and consequences of the 2010 microfinance crisis in Andhra Pradesh, India. Emphasises the need to situate the crisis within an agrarian setting marked by chronic indebtedness and vulnerability. Talks about the limits of microfinance as a solution to agrarian distress.

Strategic Change, 2013

SSRN Electronic Journal, 2011

The microfinance sector in India's state of Andhra Pradesh was recently marred by a series of mishaps that occurred due to extensive lending, which resulted in over-indebtedness and ultimately, defaults. Lending institutions resorted to coercive measures for loan recovery that led to suicides amongst borrowers. In this paper, we explore the reasons that led to such circumstances. We will consider how the widespread operations and omnipresent Self-Help Groups, together with their linkages with banks, attracted private microfinance providers. This, coupled with the absence of adequate regulatory mechanisms, resulted in over-lending to the poor. The paper discusses policy implications of the various regulatory measures that the Government subsequently took to harness and regulate micro-lending practices in the state. It is argued that the regulatory measures initiated to address the issue do not focus on the social structures, i.e., the unequal distribution of the community institutional infrastructure base for delivery of microfinance among different states, and the singular focus of privatesector MFIs on maximizing profits in an inefficiently regulated environment, that gave rise to the current circumstances.

Overviews the rise and crisis of commercial microfinance in rural India, focusing on the Andhra Pradesh debacle and the implications for the country more widely.

The Indian economy was able to witness high levels of economic growth following the economic reforms that were introduced in the 1990s. The GDP grew at the rate of 8.45 % per annum between the years 2004 till 2011 1. Despite this, India continued to see high degree of poverty and low human development. While growth did create zones of prosperity, and reduce poverty and hunger, the residue was still very large – 37.2 % of the Indian population continued to be poor 2 , while 77 % of the population remained vulnerable to income shocks 3. This proportion was even higher for the socially disadvantaged groups such as the Scheduled Castes, the Scheduled Tribes and Minorities. India continued to occupy a low rank – 134 – in the UNDP Human Development Index which takes into account health, education, income, inequality, poverty, gender, sustainability and demographic indicators 4. With an estimated 385 million employed population, unemployment in India was estimated to be about 9.4 %. 5 The post independent Indian state adopted various means for addressing poverty and livelihood challenges. This began with land reforms, followed by increasing

Microfinance 3.0, 2013

The Indian economy was able to witness high levels of economic growth following the economic reforms that were introduced in the 1990s. The GDP grew at the rate of 8.45 % per annum between the years 2004 till 2011 1. Despite this, India continued to see high degree of poverty and low human development. While growth did create zones of prosperity, and reduce poverty and hunger, the residue was still very large-37.2 % of the Indian population continued to be poor 2 , while 77 % of the population remained vulnerable to income shocks 3. This proportion was even higher for the socially disadvantaged groups such as the Scheduled Castes, the Scheduled Tribes and Minorities. India continued to occupy a low rank-134-in the UNDP Human Development Index which takes into account health, education, income, inequality, poverty, gender, sustainability and demographic indicators 4. With an estimated 385 million employed population, unemployment in India was estimated to be about 9.4 %. 5 The post independent Indian state adopted various means for addressing poverty and livelihood challenges. This began with land reforms, followed by increasing * This is an updated version of an earlier article by the authors, titled Microfinance in India-2012-Growth, Crisis and Future, which was published by the French Association d'Economie Financière in the Revue de Economie Financiere, No 102, Sep 2012. ** Founder and CEO of the BASIX Social Enterprise Group; President of the Microfinance Institutions Network of India; Chair of the Ex-Com of CGAP. *** Faculty member of The Livelihood School, Hyderabad, a BASIX Group entity. His fields of interest include the political economy of livelihoods and social performance of microfinance institutions. 1 Planning Commission: Indian Economy: Some Indicators (as on 1st June, 2011). 2 Tendulkar committee puts the figure at 37.2 % based on the NSSO study 2004-05.

Cons of Microfinance: A Case Study of Andhra Pradesh, 2018

The microcredit sector in Andhra Pradesh recently saw a series of challenges and mishaps as a result of extensive and uncontrolled lending. The overall effect was over-indebtedness and, consequently mass loan repayment defaults. Lending institutions resorted to unethical financial activities for recovering loans, such as confiscation of property and social shaming of the defaulting borrowers. These actions by the microfinance institutions led to widespread suicide cases among microfinance borrowers. This paper critically explores the disadvantages associated with the microfinance sector, especially among the poor in the society who hold to the perception that loans can provide their exit to poverty. The piece of writing will primarily focus on the case study of the microcredit borrowers in Andhra Pradesh, India. A brief overview of the microfinance concept will be provided in the first section. The second part will incorporate the description of the case study context in regards to the disadvantages of microfinance. The major cons that will be comprehensively examined in the paper, include the rising death cases among borrowers due to financial stress, deepening poverty, high-interest rates, in-dignifying the borrowers, and overall decline in the community cohesiveness. These cons contributed to the crisis of Andhra Pradesh which rose to become a reference point as a catastrophic financial intervention of the century. The paper concludes by suggesting a community-based approach to lending that ties the level of credit to sustainability and viability of a micro venture. Keywords: microfinance, poverty, Andhra Pradesh, self –help groups, India, women.

Journal of Agrarian Change, 2011

Within neoliberal development discourse, the poor are represented as entrepreneurial subjects for whom integration into formalized financial systems can facilitate their escape from poverty. This paper examines how the 2010 microfinance crisis in Andhra Pradesh reveals significant fault lines that underlie this narrative. It argues that the crisis of microfinance in Andhra Pradesh needs to be placed within the context of severe agrarian dislocations stemming from the impact of trade liberalization, drought cycles and a transformation of rural social relations. The contradictions are most strikingly represented in increasing rural differentiation and a generalized crisis of social reproduction among land-poor farmers and landless labourers. A massive influx of microfinance-driven by both state-operated programmes and private-sector institutions leveraged with cross-border financial flowsfound a ready clientele among various agrarian classes seeking to bolster consumption and roll over debt in conditions of significant uncertainty and distress. Yet in banking on this vulnerability, microfinance institutions socialized the contradictions of rural Andhra Pradesh and have ultimately been thrown into limbo through the unleashing of political and social forces unforeseen in neoliberal narratives of agrarian change.

The basic assumption of this paper is that rural development in India should not be seen as a package of specific needs but as a transformation of rural life and conditions of the country. In this paper, it is assumed that the term rural development means the overall development of rural areas on a sustainable basis. In this background, the paper attempts to explain the link between the microfinance services and rural development. The paper also argues that microfinance is not a magic bullet for poverty reduction and rural development in India. The paper which is conceptual in nature is totally based on secondary data.

Economic & Political Weekly