Microlenders, Honored With Nobel, Are Struggling
“We at microfinance have a job to do to make it easier for politicians to support us,” said Alex Counts, the chief executive of the Grameen Foundation. “Rather than make claims that get out in front of the research, we need to impose on ourselves the discipline of transparency about poverty reduction.”
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In India, leaders in the southern state of Andhra Pradesh, which accounts for about a third of the country’s microloans, have accused lenders of impoverishing customers. Stories proliferated in the local news media about women who had amassed debts of $1,000 or more as loan officers cajoled them into borrowing more than they could afford and then browbeat them to repay. Many had used the money to pay for televisions or health care or to soften the blow of failed crops, rather than as seed money for businesses.
Microcredit firms in India were also accused of siphoning borrowers from government-run “self-help groups” — women’s organizations that can borrow small amounts at subsidized interest rates from government-owned banks.
The movement against microcredit was started by opposition politicians, who have encouraged borrowers not to repay their loans and have accused senior leaders of the ruling Congress Party of being in cahoots with lenders. The Congress-led state government made the cause its own and passed a tough new law in December to cap interest rates and regulate collections.
The crisis has had ripples across the nation. Banks, the primary source of money for microlenders, have turned off the tap because they are worried about the industry’s future. As a result, microlenders have slowed or stopped lending nationwide.
Grameen Financial Services, a microlender in Bangalore that is not related to Grameen Bank, has idled 600 new employees it hired just a few months earlier with plans to expand into western and central India. The firm does not lend in Andhra Pradesh.
“This is frustrating,” said Suresh K. Krishna, managing director of Grameen Financial. “This is not what we set out for. The whole objective of floating this was to support entrepreneurs and support people in the rural areas and people below the poverty line.”
Industry leaders say they hope the issues will be resolved soon. The federal government and the Reserve Bank of India, the country’s central bank, are working on new federal regulations to oversee microcredit, said Alok Prasad, chief executive of the Microfinance Institutions Network.
Still, some industry officials acknowledge that the sector needs to reform itself to overcome political opposition and live up to its promise. They say organizations that now offer only loans need to diversify into microsavings accounts, which many specialists assert are much better than loans at easing poverty.
The industry, they say, also needs to speed up efforts to build a credit bureau that would reduce overlending. And organizations need to measure their success not just by growth and profits, but by how fast their customers are getting out of poverty, experts say.
“We at microfinance have a job to do to make it easier for politicians to support us,” said Alex Counts, the chief executive of the Grameen Foundation, a nonprofit in Washington that is not part of Grameen Bank. “Rather than make claims that get out in front of the research, we need to impose on ourselves the discipline of transparency about poverty reduction.”