(2010-11-18) India Microfinance Problems

India's MicroLending activity is facing challenges: almost all borrowers in one of India’s largest states have stopped repaying their loans, egged on by politicians who accuse the industry of earning outsize profits on the backs of the poor... Microfinance in pursuit of profits has led some microcredit companies around the world to extend loans to poor villagers at exorbitant interest rates and without enough regard for their ability to repay. (The article has frustratingly little hard data - anecdotes are a dangerous basis for balanced discussion, though they're a good basis for raising questions.)

Elisabeth Rhyne of Accion International gives their side.

Michel Bauwens notes past critiques of the whole model. Starting a new trading business or a basket-making operation or driving a rickshaw required few skills and only a tiny amount of capital, but such a project generated very little income indeed because everyone else was pretty much already doing exactly the same things in order to survive... As the Wall Street Journal conceded in late 2001, a fifth of the GrameenBank’s loans were more than a year past their due date: ‘Grameen would be showing steep losses if the bank followed the accounting practices recommended by institutions that help finance microlenders through low-interest loans and private investments.’ A typical financial sleight-of-hand resorted to by Grameen is to reschedule short-term loans that are unpaid after as long as two years; thus, instead of writing them off, it lets borrowers accumulate interest through new loans simply to keep alive the fiction of repayments on the old loans.