Tag Archives: Andhra Pradesh

The Micro-Loan Credit Crisis

Is it just me or are bankers incapable of policing themselves and learning from their mistakes.  Even with microloans they are idiots.

Nipping at SKS’s heels were other microcreditors, also based in Hyderabad, which helped make Andhra Pradesh India’s microcredit hotbed. Villagers experienced the arrival of 2, 3, 4, even 8 or 10 microcreditors within the last few years, all eager to press loans into the hands of women. Loan officers learned that they could line up customers more quickly in villages where their competitors already operated, for there the women would have been educated in the mechanics of microcredit—and might want new loans to service old ones. So loans were heaped on top of loans.

Even Vijay Mahajan, the president of the microfinance industry association, has been bluntly critical:

In their quest to grow, they kept piling on more loans in the same geographies…That led to more indebtedness, and in some cases it led to suicides.

Unfortunately, while loan disbursement became irrationally exuberant, loan collection remained insistent. Microcredit is about mass-producing low-quality services in order to keep costs in line with the small amounts transacted. For the machine to run efficiently, clients must keep up on their payments. Microlenders also pounce on delinquency to prevent it from snowballing, so that women will not ask, “Why should I pay if she is not?” Loan officers now stand widely accused of harassing borrowers, yelling at them outside their homes, even threatening violence. The pressure has been blamed for at least 54 suicides. While the allegations are individually dubious, arising as they do in a politically charged, media-scrutinized environment, the link to suicide is plausible. Microcredit is the least flexible, least forgiving form of credit available to the poor of Andhra Pradesh, thus most likely to push them over the edge.