> Posted by Holly Padgett
Since I started working with the Center for Financial Inclusion this fall, I’ve been inspired to observe the client-centered nature of the microfinance industry. For example, I recently read a report by MicroSave, an organization that focuses on market-led microfinance in Africa and Asia, which confirmed this client-centered trait. The report examines client experiences in the wake of the microfinance crisis in Andhra Pradesh.
Below are some of the findings of the report that I found most striking:
- With MFIs in Andhra Pradesh drastically reducing new lending, borrowers have been forced to seek out alternative sources for lending. In 66 percent of the research sessions MicroSave conducted, clients described the major burden of these alternative loans as the “exorbitant” interest rates.
- Ninety percent of the people interviewed said that they were actually willing to repay loans to MFIs during the crisis, on the condition that new loans would be distributed.
- A majority of respondents said they preferred not to take loans directly from mainstream private and public sector banks due to “inordinate delays, cumbersome procedures, and the complex documentation requirements.”
- While clients like the timely delivery and convenience of loans from MFIs, they disliked having to take on group responsibility and the lack of a grace period.
The study goes on to outline recommendations for MFIs, regulators, and state governments to adopt more stringent client protection policies.
It’s great to see that organizations like MicroSave are pulling important lessons from difficult events and making recommendations for progress in client protection. As a relative novice to the world of financial inclusion, this report leaves me both curious and optimistic about what the future holds for the industry.
Have you read?
Consequences of Over-Indebtedness: Lessons from India
On Microfinance: Who’s to Blame for the Crisis in Andhra Pradesh?
The Lessons of Andhra Pradesh
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December 19, 2011 at 11:50 am
sahadev
The media coverage of MFIs in Andhra Pradesh has led one to believe that before the advent of MFIs in India, people were paying exhorbitant rates of interest to loan sharks. The reality is that there are three distinct types of institutions working in micro finance sector, of which the now troubled MFIs form a small part. The state assisted bank linkage programee has 564089 self helf groups availing Rs. Rs. 670664 lacs loans as on March, 2010 with nominal interest rate of 12 % subsidised by the state government by 8 % resulting in a net interest rate of $ %. The outstandng loans as on March, 2010 is Rs. 1173953 lacs ( Source : NABARD Report on State of Micro Finance 2009-10). The other category of mutually aided co-op credit societies is also still active and continuing their lending and recovery operations even today. They are charging 18-24 % on the loans and paying 9-12 % on thrift deposits of members. It is entirely wrong to say that people once again paying exorbitant rates of interest after the collapse of the big MFIs. The typical interest rate on unsecured loans given by village money lender is 36 % , and no hidden charges, penalties, forced insurance policies are part of such loans. This rate of interest is in no way usurious when compared to the interest rates of the big MFIs. In fact, the big MFIs made excellent use of the infrastructure of lakhs of SHGs built up through the decade long efforts of the state government, agencies like OXFAM, CARE , NABARD o and played havoc with multiple financing leading to their own downfall. The self help groups and co -op institutions which have grown from the grass root level continue to carry on their activities without any hindrance. The state of Andhra Pradesh also has one of the most progressive legislation in the field of co-operative societies, namely the Mutually Aided Co-op Societies Act which gives enormous operating freedom and flexibility to the societies. This act has helped the formation and excellent running of a number of co-operative credit societies in the field of micro finance. I request the media to give balanced coverage to the microfinance sector in the state of Andhra Pradesh . The equation Microfinance = Big MFI is not at all true
December 19, 2011 at 2:12 pm
Holly Padgett
Thank you for your comment and the information!
I encourage anyone else interested in the post to check out the full report by MicroSave (linked to above), since I only briefly skimmed the surface.