Finally a reporter who actually attempts to explain the objective facts on the current microfinance crisis in the Indian state of Andhra Pradesh.
Microfinance by the Numbers by Eric Bellman
Here are a few highlights:
- Default rates by borrowers were ~2% before the politicians intervened and now have risen to 50% since they instructed borrowers not to repay their loans
- On a per capita basis, there are 5-10x fewer suicides amongst microcredit borrowers than the general Indian population
- Upon closer investigation, it appears that loan sharks, landlords and even family members are more to blame for the suicides than the microcredit companies
- The interest rate for microcredit loans (24-30%) is the same as the local rate for credit cards (30%) which has never been controversial
- Even though government schemes like self-help groups offer heavily subsidized 3% loans to women, why is there so much demand for microcredit (hint: loans insufficient, not available or require bribes)
Net: If the government continues this harassment of MFIs and imposes unreasonable regulations, the current microcredit borrowers will no longer have access to these financial services and will either have to go without, or more likely be back as clients of the local loan shark at 150-300% interest rate plus their well-known collection techniques.