> Posted by Center Staff
What are microfinance advocates to think about the conflicting narratives that are emerging about the dozens of suicides in Andhra Pradesh?
On the one hand are assertions by the Indian state’s politicians and some community members that debts owed to microfinance institutions triggered the deaths.
On the other are some MFIs that claim, as reported by the Wall Street Journal, that microloans were among “the smallest of the many problems of the people that have killed themselves.”
The WSJ quotes one mother in the village of Sankarampet as saying that her son’s suicide was tied not to his wife’s $220 microloan, but rather to his own debt to loan sharks that was 10 times bigger.
How blame for the suicides is apportioned is having severe consequences in Andhra Pradesh, which, as the Financial Times reports, “has developed its own successful scheme to provide credit to women’s self-help groups.”
At this point, the anti-MFI narrative seems to have the upper hand. The Hindu Business Line reports that microfinance institutions are finding their field staff barred from some villages in Andhra Pradesh.
And two weeks ago, as charges flew about the suicides, the state passed an emergency ordinance that halted debt repayments. The consequences for local microfinance institutions have been dire.
So what are we to think about the unfolding of this story, with its heartbreaking human toll and serious implications for the industry as a whole?
It is too soon for definitive judgments. But several points are clear:
First, any connection between the suicides and industry practices demands scrutiny and action.
Second, authorities’ response of laying down heavy restrictions on microfinance institutions is probably not a good one. An overreaction seems to be in the works, one that will hurt MFIs and clients alike.
Third, better client protection practices are the right answer to almost every question raised by this crisis. Foot-dragging on implementing such practices may bear some blame here, along with a desire to grow portfolios at the expense of careful expansion.
Andhra Pradesh’s lesson is this: It is to everyone’s benefit that smart client protection practices take deeper root — not just there, but everywhere. It should not have taken a tragedy to cast a harsh and revealing light on that need. But now that we’re here, client protection is the only way forward.
Image Credit: Ssolbergj
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14 comments
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November 1, 2010 at 11:18 am
Daniel Rozas
Spot on.
It’s worth bearing in mind that serious client protection also has the benefit of avoiding not just questionable practices, but also in establishing the minimum lending standards that protect the industry from the negative effects of competition, which tend to undermine those very standards. And once these principals have been refined for the local environment, it’s worth having government make them official and mandatory — so that fly-by-night operators won’t undermine the rest of the sector.
An industry that’s proactive in lobbying for a smart regulatory regime will both reduce the risk of sector-level crises and wind up with better regulations. Unfortunately for them, Indian MFIs have failed to heed this lesson…
November 4, 2010 at 9:52 am
Center for Financial Inclusion
Thank you for expanding the conversation here. You’re raising critically important points. The overall environment is indeed crucial to how this crisis has unfolded, and how it can be resolved. A deeper look at some of the factors that provoked the current crisis is available in Beth Rhyne’s Huffington Post article, “Who’s to Blame for the Crisis in Andhra Pradesh?” If you have more thoughts and analysis after reading it, we’d be excited to hear your comments. Thanks again for reading. Best regards, Center Staff
November 2, 2010 at 2:11 pm
Jenni
as a long time conspiracy theorist…I wonder if any loan sharks are behind the legislation and movement to get MFI barred.
Thanks for the perspective.
November 4, 2010 at 9:52 am
Center for Financial Inclusion
That’s a question worth asking, but for the moment, no facts seem to support an affirmative response. It looks like this crisis is earning intense media and researcher scrutiny, though, so any real links would be hard to hide. If you’re interested in taking a deeper look at the factors that led to this situation – those we can be sure of – you are welcome to learn more from Beth Rhyne’s Huffington Post piece “Who’s to Blame for the Crisis in Andhra Pradesh?” Thanks again for reading. Best regards, Center Staff
November 3, 2010 at 10:43 am
Charlotte
Interesting perspective. So glad this blog is here as a resource.
November 4, 2010 at 9:50 am
Center for Financial Inclusion
It’s great that you find this blog useful. We’re trying to keep the ideas fresh, so please keep coming back for more facts and commentary on Andhra Pradesh and other burning issues facing the microfinance industry today. For now, here’s a link to more analysis of the crisis, this one to Beth Rhyne’s Huffington Post article “Who’s to Blame for the Crisis in Andhra Pradesh?” Thank you for reading! Best regards, Center Staff
November 3, 2010 at 2:34 pm
B S Suran
Ok, Its good to note the other side of the story. But i fear all the statements made in the story is NOT fully true. The ordinance may be hastily drawn and has issues to be sorted out , it only requires mandatory registration, avoiding multiple financing, asking mFIs not to take collaterals , penal provisions for violation etc , there are no HALTS ON DEBT repayments as is being reported or dreaded capping of interest rates. As the articel points out , the issue is all about transparency and client education , can we do that ….that is the crux and which is awfully missing….cheers
suran
November 4, 2010 at 9:56 am
Center for Financial Inclusion
Thanks for sharing your perspective on this. It’s important to hear how the situation looks from a variety of angles so that we can sort out what’s happening. We look forward to your thoughts as this crisis unfolds. And thank you for reading. If you’re interested in this topic, please take a look at Beth Rhyne’s Huffington Post piece on the topic, “Who’s to Blame for the Crisis in Andhra Pradesh?” Best regards, Center Staff
November 4, 2010 at 8:31 am
Aseya Qasim
we often talk of client protection in wake of crisis due to overlending and aggressive repayment practices, i would like to ask my indian friends what kind of protection the MFIs have in wake of massive loan defaults campaign invoked by activists. i have following APs story pretty much closely and have come to an understanding that not all the tragedies have occured due to MFI’s fault or behaviour as such; but yes all the MFIs are now suffering non repayment of due installments from their clients.
Do the MFIs have any legal recourse in this situation ???
November 5, 2010 at 2:03 am
Farhat Abbas Shah
To look into the other side always provide a mature learning. I believe that the microfinance sector has stopped millions of people to commit suicide. I observed that the economically active poor and any poor with a sense of responsibility save their lives and also uplift their families from the dark well of poverty through microfinance. How ever the closed street of zero percent tolerance and the irresponsible attitudes of MFIs has played a bad role for expanding their outreach and rapid growth. Here in Pakistan three staff members of ***** MFI has been committed suicides within almost two years. Instead of all reports about staff dissatisfaction, the management never bother to change their HR procedures and compensation systems. So these type of MFIs actually are the main reason to give a bad name to the sector, while the sector has been spent millions of dollars for the betterment of the clients and staff as well. We also should count the lives, microfinance saved during last 25 years and this is not microfinance loans behind these suicides, these are the MFIs like Asasah, who do not care for staff satisfaction and client protection code as well.
November 5, 2010 at 10:34 am
Center for Financial Inclusion
We appreciate your thoughts on the crisis. While no research or documentation has been brought to our attention that establishes a connection between any MFI and staff suicides, it is certainly a best practice to keep a careful eye on the health and well-being of MFI employees. Your observation that MFIs may have prevented many suicides is also an interesting way of looking at the unfolding crisis. Please note that in your comment, we’ve starred out the name of the particular MFI you mentioned. As a general policy, we don’t want to shy away from publishing criticisms of particular organizations or businesses, but we have to draw the line when it comes to highly sensitive life-and-death matters such as suicide. Thank you again for your comment and for reading, and if you are interested in a deeper analysis, please check out Beth Rhyne’s Huffington Post article, “Who’s to Blame for the Crisis in Andhra Pradesh?” Best regards, Center Staff
November 5, 2010 at 5:23 pm
Getaneh Gobezie
Colleagues, I thank you for this interesting discussion, and the article: ”Who is to blame….”. Yes, microfinance can serve a valuable purpose in poverty alleviation and promoting growth. But this would only be reilized if it is implemented in a ‘responsible’ manner by practitioners. To make sure that this is happening, the public need to keep monitoring MFIs. That is why since some years back there is a growing voice on client protection and ‘MFI Certification’ by people like Muhammed Yunus and the ‘fairmicrofinance.org’, etc. Failure to apply ‘regular’ monitoring can lead to risks as is happening in India and potentially many other countries. When the crisis occurs, the public would be forced to take abrupt and quick measures as the ‘ordinance’ in India, which can have undesirable consequence for the growth of the industry in general. I suggest interested people to read my own paper on ‘SUSTAINABLE RURALFINANCE…..’ posted at the (recomended papers section of) microfinancegatway:
http://www.microfinancegateway.org/p/site/m/template.rc/1.9.30284/
November 6, 2010 at 5:50 am
Center for Financial Inclusion
We can only echo your sentiment about the critical importance being a responsible practitioner, in Andhra Pradesh and everywhere. Thank you for reading and sharing your thoughts! Best regards, Center Staff
May 4, 2011 at 11:31 am
adriela
After being cherished as a massive and effective tool of poverty reduction for many years, the microfinance industry today seems to come under increasing attack. In Bangladesh, Mohammed Yunus, the icon of the microfinance revolution has been removed by the government from his post as the chairman of the Grameen Bank. In Andra Pradesh, microfinance is blamed for an increase in farmer suicides, while in Nicaragua the government sponsors a nationwide Non Payment movement denouncing microfinance as usury and exploitation of the poor. On a quite less dramatic and political tone, scholars point out that the social impact of microfinance services on poor, vulnerable clients is far less automatic and significant than was often claimed. It is also indicated that 70% of the worlds’ poor live in rural areas and that the vast majority of them dependent to various degrees on agriculture, while at the same time agricultural finance still remains a recent and difficult frontier for the industry to conquer. Getting ahead through microfinance also seems particularly difficult for the rural poor.
In the midst of these increasing doubts and attacks on microfinance, the sector entered into a life-threatening crisis in several countries, most of which previously were precisely the poster-child of the industry’s success, enjoying a massive inflow of fresh funds for years.
I am waiting for your comment