Rethinking Multiple Borrowing

Financial Access Initiative, 14 September 2011; MicrofinanceFocus, 15 September 2011

Some time ago, I had a conversation with a microfinance investor.  What is the greatest challenge facing the sector? – I asked.  His answer:  multiple borrowing – multiple borrowing getting people into too much debt; multiple borrowing transforming micro-enterprise lending into consumer finance; multiple borrowing rewriting the traditional relationship between MFIs and their clients.

Of course, multiple borrowing is present in all of these cases.  But thinking about multiple borrowing along these lines misunderstands the basic situation. Multiple borrowing isn’t a reflection of some recent or extreme developments to be ascribed to runaway growth, greed, or willing ignorance.  And despite press articles to the contrary, it is neither a result of heavy market penetration, nor even saturation. No, multiple borrowing is an intrinsic part of the practice, one that has been with us for years. more →

Tags: , , , , , ,
Categories: Financial Access Initiative, Microfinance Focus

Microfinance in Crisis: the Case of the Hidden City

Co-authored with Karuna Krishnaswamy; MicrofinanceFocus, 25 January 2011

Hyderabad has gone missing.  And it seems nobody has noticed the absence.  While academics and the press were scouring the villages of Andhra Pradesh in search of over-indebted borrowers and debt-induced suicides, and while politicians in the villages and government halls were busy protecting their beloved SHGs (and the vote banks they provide), Hyderabad up and vanished, leaving apparently no trace of its prior existence.

Naturally, we are referring not to the physical city, but to its microfinance market, as well as those of other cities in Andhra Pradesh.  Make no mistake – microfinance lending in urban AP has been widespread, outpacing even that of the countryside.  And yet, there seems to be little recognition of its existence and how it has been affected by the current crisis.  more →

Tags: , , , , , ,
Categories: Microfinance Focus

Avoiding a Microfinance Bubble in India: Is Self-Regulation the Answer?

Co-authored with Sanjay Sinha;  MicrofinanceFocus, 10 Jan 2010

We live in a time of object lessons.  The economic crisis continues to buffet many countries, including the US, where the unemployment rate has now breached 10% for only the second time in the last 70 years, taking only 18 months to get there – the largest and steepest increase since World War II.  Three years after the first rumblings in the US subprime mortgage market, many banks around the world are still ailing.

The microfinance industry has not been immune either – MFIs in countries as diverse as Nicaragua, Bosnia, and Morocco are under severe stress, while many others have seen their portfolio numbers deteriorate significantly.  For the first time in its 11-year history, the industry’s flagship private investment vehicle – Blue Orchard’s Dexia Micro-Credit Fund – reported a net monthly loss.

The sector in India has thus far successfully avoided this fate.  more →

Tags: , , , , , ,
Categories: Microfinance Focus

Is There a Microfinance Bubble in South India?

MicrofinanceFocus, 17 Nov 2009

By most standards, microfinance is a young sector, and in many countries it can be said to still be in its infancy.   Yet its continuing spectacular growth, especially in India, should give one pause – every time promoters celebrate another multi-million-client threshold, I wonder – how many more such thresholds are left?  How do we know when we’ve arrived?

This is not a philosophical question – normally, markets send signals.  New customer demand drops.  Prices fall.  Margins decrease.  However, credit markets are funny animals – the hopeful, exuberant part of our human nature dictates that, when presented with the opportunity, we tend to overestimate our repayment capacities and borrow beyond our means.  And when we can borrow from one lender to repay another, we can stretch the cycle out even further.  The market signal gets delayed, while a bubble builds – when the signal does come, it is in the form of the bubble bursting.  more →

Tags: , , , , ,
Categories: Microfinance Focus
« Newer Entries