TWO CRISES OF INDIAN MICROFINANCE revised version · Indian microfinance had grown at a supersonic...
Transcript of TWO CRISES OF INDIAN MICROFINANCE revised version · Indian microfinance had grown at a supersonic...
TWO CRISES OF INDIAN MICROFINANCE : WHY ARE THEY DISCONNECTED?
Balbir Jain Associate Professor of Economics
Motilal Nehru College (University of Delhi)
Benito Juarez Road, New Delhi, 110021, INDIA Email : [email protected]
Revised Draft : May 31, 2011
Paper to be presented at the Second European Research Conference on Microfinance, Groningen, The Netherlands: June 16 – June 18, 2011
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Abstract
This paper is exploratory in nature. Analysis of the current crises of microfinance in the
state of Andhra Pradesh raises oft-repeated questions including the question of over-
indebtedness which has been unattended so far. The crisis of over-indebtedness among
the poor borrowers has been caused by endogenous factors including increased
competition among the ‘for profit’ microfinance institutions (MFIs). The poor borrowers
seek to overcome the crisis by various means e.g. cuts in their meager levels of
consumption and sale of assets. However, there is political intervention and another crisis
– non-repayment of dues on a mass scale is thus caused by exogenous factors. The paper
argues that the crisis of over-indebtedness has arisen because of the failure of the ‘for
profit’ MFIs to implement the moneylender’s strategy to keep the poor borrowers in a
perennial debt trap. The ‘for profit’ MFIs have gone beyond it because they have
transcended the limits of their lending to the poor due to their inability to overcome the
problems of ‘adverse selection’ and ‘moral hazard’.
Key words : adverse selection, consumption smoothing, debt trap, dynamics of poverty,
moneylender’s strategy, moral hazard.
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INTRODUCTION
Indian microfinance has plunged into a severe crisis due to non-payment of dues by a
large number of borrowers of the MFIs in the state of Andhra Pradesh. The crisis has
been both sudden and unexpected. Prior to the crisis which started in the fourth quarter of
2010, a very optimistic mood prevailed among the ‘for profit’ MFIs. This segment of
Indian microfinance had grown at a supersonic pace during the recent years. The maiden
IPO of the largest MFI - SKS Microfinance - had been oversubscribed fourteen times.
Then there was a sudden turn of events. There were reports of suicides by a number of
MFI borrowers. This was followed by political protests. The borrowers of the ‘for profit’
MFIs were openly instigated by the politicians not to pay their dues and the crisis of non-
repayment of dues on a mass scale was set in. Though the crisis of non-repayment is
restricted to one state - Andhra Pradesh; its ramifications are felt throughout the country
because Andhra Pradesh is cradle of Indian microfinance. 25 per cent of this sector is
concentrated in this state.
In case of the other segments of Indian microfinance - the self help group (SHG) based
microfinance – it is business as usual. Why do the two sets of the MFI’s face a dissimilar
situation when both of them are engaged in the same business? Non-repayment of dues
has shaken the foundations of a large number of the ‘for profit’ MFIs, why are the SHG-
based MFI’s unaffected?
Non-repayment occurs either due to willful default or due to inability to repay. The
supporters of the movement against the ‘for profit’ MFIs link the issue of non-repayment
to the problem of over-indebtedness i.e. it is due to the inability factor. But most of the
borrowers of the affected MFI’s are not over-indebted. However, both sets of borrowers -
over-indebted and others - have stopped the repayment of their dues.
From a political angle, it is a curious case. The microfinance industry has been getting
ample political support because microfinance has been accorded a high priority in the
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government’s strategy for poverty alleviation. However, a distinction needs to be made
between different segments. Local politicians have arguably a vested interest in one
particular segment – the SHG-based MFIs. The SHGs are increasingly being used as
political capital by politicians, states Aloysius Fernandez of MYRADA in annual
conference of Microfinance India (Microfinance India, 2007). Indeed the SHGs can play
a crucial role in promoting the vested interests of the politicians. In the recent assembly
elections in Tamilnadu, the SHGs are reported to have been used as vehicles for
undertaking ‘notes (money) for votes’ transactions of the unscrupulous politicians.
The rapid growth experienced by the ‘for profit’ MFIs has been, to a certain extent, at the
expense of the SHG-based MFIs. Unlike the SHGs, the ‘for profit’ MFIs provide just
loans; the restrictive practice of the periodic savings has been done away with and it has
given them an edge particularly among the myopic present-biased clients. But it has also
opened up the path towards indebtedness.
It has to be noted that Indian microfinance owes its stature to the socially motivated
leaders of the SHG movement. Establishment of the SHGs has not been an easy task. It
involves among other things training of its members in saving, lending and accounting.
There are many parts of India where microfinance could not take off despite immense
efforts1. We shall not go into its causes. The ‘for profit’ MFIs have not targeted the areas
where the microfinance movement has to be nurtured. They have concentrated on the
areas where it is already well-established particularly the state of Andhra Pradesh where
it has already reached the saturation point because of an elaborate SHG movement. Since
there is no scope for enrollment of new clients, they have intensified competition for
client acquisition – a fact which has been acknowledged in a number of reports including
Srinivasan (2009) and Ghate (2006).
The antipathy of the local politicians to the ‘for profit’ MFIs is thus not unexpected. But
it has not been easy for the dominant group of the local politicians, who belong to the
ruling party both at the state and the central levels, to disturb the functioning of the ‘for
profit’ MFIs. In normal circumstances they cannot risk the displeasure of their central
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leadership because the latter plays a decisive role in the selection of the party and
government functionaries at the stale level. But the crisis has precipitated to such a level
that the local leaders belonging to both the ruling party and the opposition have been
vying with each other in terms of aggressiveness against the ‘for profit’ MFIs. The result
has been a severe non-repayment crisis.
Without political interference, the crisis of non-repayment would not have occurred. This
is not for the first time that such a crisis has occurred. There have been cases of mass
defaults in the past too. It happened in certain districts of Andhra Pradesh in 2006. Again
a similar problem arose in Kolar district of Karnataka in 2009. But the response of the
industry has been lacking. Its response may be summed in these words: “The likelihood
that some borrowers might have problems of loan service has to be accepted and MFIs
geared to respond to the same in a manner other than forcible recovery, such as
rescheduling of loans and postponing of instalments” (Srinivasan, 2009). In this manner,
the problem of non-repayment which is a problem of the MFIs may be overcome. But
this does not address the root cause - the problem of over-indebtedness2. However, the
dissonance between the concerns of the poor clients and the concerns of the MFIs is quite
apparent.
Why does microfinance give rise to over-indebtedness? Over-indebtedness usually occurs
due to a persistent tendency of consuming ahead of income. Persistence of such a
problem calls for a change in the widely held perception of the policy makers and the
microfinance industry that microfinance provides livelihood finance. Though the other
purposes including consumption smoothing has been recognized by a number of studies
yet this aspect remains ignored at the level of policy makers. For example, the Reserve
Bank of India in its latest policy statement explains the characteristics of ‘qualifying
asset’ that define microfinance. The requirement is that not less than 75% of the total
amount of loans given should be for the purpose of income generation. Does such a
restriction actually work? Futility of such restrictions has a long history including the
loans provided for productive purposes by the public sector banks under the Integrated
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Programme for Rural Development (IRDP) during the eighties and nineties.3 This paper
will focus on the manner in which the microcredit is actually used.
In the context of the present crisis, it is quite common to use the term over-indebtedness
among the poor. But what does it mean? How is it measured? It is difficult to define over-
indebtedness due to a number of reasons. Is it difficulty to repay or inability to repay?
The problem in repayment may be due to seasonal or cyclical variation in income. In
another setting, the borrower may have to cut the consumption to repay the loan but her
income would be enhanced because of the productive assets acquired with the help of the
loan. Is it a sacrifice or over-indebtedness? The purpose and effect of the loan is,
therefore, quite crucial. Delinquency may not occur but the borrower may be pushed
below the subsistence level due to repayment of the debt dues. In extreme cases, the
borrower may have to sell her assets. To bear the burden of the debt, the child may have
to be withdrawn from the school and she may have to work as a child labourer. A loan is
repaid either by raising another loan or it is rescheduled. If it is due to inability to repay,
is it not over-indebtedness?
Measurement of over-indebtedness is even more difficult. A number of factors including
differences in tenure of the loan(s), purpose, effect on income, level and variation in
income make it difficult to measure indebtedness. An income generating loan may not
give rise to over-indebtedness despite a high annuity-income4 ratio. But in case of income
shocks arising due to seasonal or cyclical or idiosyncratic risks, repayment may be quite
burdensome despite a lower annuity-income ratio. Besides these methodological
problems, collection of data on over-indebtedness is quite difficult. Multiple borrowing is
usually the cause of over-indebtedness and the borrowers tend to conceal the other loans
while seeking another loan. If they reveal other loans they face the risk of rejection of the
application for the additional loan. Information regarding formal loans may be made
available by evolving an appropriate mechanism, but the informal sector loans would
remain out of preview of such an arrangement. Data on over-dues would also portray an
incomplete picture because of the possibility of the sale of assets by the over-indebted
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household. A similar situation arises when the borrower is compelled to cut down her
essential consumption.
What are the causes of over-indebtedness? We attempt to answer this question in terms of
moneylender’s strategy to keep the poor borrowers in a perennial debt trap. The
moneylender follows a very cautious approach. He has intimate knowledge about his
client and is able to overcome the problems of ‘adverse selection’ and ‘moral hazard’.
Moreover, he sets the annuities of his loan in such a manner that over-indebtedness is
avoided. The ‘for profit’ MFIs, on the other hand, have not been able to avoid over-
indebtedness. Unlike the moneylender, they are unable to overcome the problems of
‘adverse selection’ and ‘moral hazard’. By focusing upon the moneylender’s strategy we
follow a different path because the focus of the ongoing debate on over-indebtedness is
on two factors : (1) usurious practices of the ‘for profit’ MFIs and (2) multiple-lending.
We examine these factors in details and argue that they do not necessarily result in over-
indebtedness. The crucial factor is the failure to overcome the problem of lending for
purchase of goods and services which are not affordable within the given level of
borrower’s earnings.
Our discussion has centred on the use of the microfinance for the purchase of goods and
services which are unaffordable in case the poor borrowers because of their low incomes.
This indicates a negative impact of microfinance on the levels of living of the poor
borrowers which is the very antithesis of what microfinance stands for in the public
perception. But it has to be acknowledged that microfinance does not necessarily work in
the perceived manner.
Microfinance may also provide a means of smoothing household’s consumption across
the income shocks arising due to unemployment or sickness. Welfare gains of
consumption smoothing are very high in such situations. We examine these issues –
positive impact of consumption smoothing and negative impact of the purchase of
unaffordable goods and services including the temptations goods - in the context of
dynamics of poverty.
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This is an exploratory exercise. But it makes a strong case for redefining the role of
microfinance in poverty alleviation. Access to credit to the poor for income generating
activities has been raison d’etre of the microfinance. We find that the poor mostly use it
for other purposes. Even access to credit has a flip side; over-indebtedness among the
poor has occurred in a number of cases. At the same time, it has a positive side – it
provides a means of smoothing consumption. Since the welfare costs of consumption
fluctuations are very high for the households who are close to a subsistence level of
living, they have no option but to resort to costly consumption smoothing mechanisms in
the absence of a welfare state. Microfinance can play a vital role in such a setting.
However, it cannot be termed as a satisfactory arrangement because of a number of
reasons including the limited coverage of the poor in case of microfinance.
The paper is organized as follows: Section II gives a brief exposition of role of
microfinance in the context of dynamics of poverty. Since the focus of this paper is on
the problem of over-indebtedness among the poor, it is imperative to understand the
nature of variations in income of the poor households. The income flows of the poor
households are low, irregular and uncertain. Various income shocks arise due to seasonal,
cyclical and idiosyncratic risks. These aspects are explained in this section. Issues
pertaining to meaning of over-indebtedness among the poor are dealt in Section III.
Causes of over-indebtedness are discussed in Section IV which is further divided in four
sub-sections. This section begins with the analysis of the argument that over-indebtedness
is caused due to usurious practices of the MFIs and multiple lending. Sub-section IV.1
provides empirical evidence on the effective rates of interest charged by various MFIs. It
also provides data pertaining to the expenses of the MFIs. Subsection IV.2 examines the
issues pertaining to multiple lending and rescheduling of the loans. In Subsection IV.3 we
argue that usurious practices of the MFIs and multiple lending do not necessarily give
rise to over-indebtedness. Moneylender’s strategy in such a situation would be to keep
the borrower in a debt trap and avoid the over-indebtedness by overcoming the problem
of ‘adverse selection’ of the loans. The problem can be looked at another angle – some
poor households tend to use the borrowed funds for purchase of goods and services which
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they cannot afford. This problem is a sort of the problem of ‘moral hazard’. We argue in
subsection IV.4 that over-indebtedness is due to the failure of the MFIs to overcome the
problem of ‘moral hazard’. Concluding observations are given in Section V of the paper.
II. DYNAMICS OF POVERTY AND MICROFINANCE
The poor belong to two categories: chronic poor and transient poor or temporary poor.
Temporary poverty implies that a household may be poor at a given period and may be
non-poor in the subsequent period and vice versa. In other words, a temporal change in
poverty is not unidirectional but bidirectional. The chronic poor, on the other hand,
comprise mainly ‘earning capacity poor’ who would fail to generate enough income to
lift their family out of poverty even if they make full use of their earning capabilities.
The distinction between chronic and temporary poor is quite useful for understanding the
problem of poverty. The chronically poor may be in need of programmes to enhance their
endowments of human capital, or, in the case of poverty due to disability or old age, be in
need of permanent transfers. In contrast, the temporarily poor can be helped with
programmes which complement their own resources and help them to ‘bridge’ the period
that they are poor.
Making the distinction between chronic and temporary poor requires information on the
duration of poverty. In practice, this needs to come from panel surveys, which follow the
same households over time. In India there have been a few studies based on such panel
surveys including Lanjouw and Stern (1991).We explain the dynamics of poverty with
the help of data on poverty obtained from this study. The data sets pertain to the period
between 1957-58 and 1983-84. The data sets are quite old yet we believe that these data
sets are quite useful to furnish an illustrative example on the dynamics of poverty in
India.
Lanjouw and Stern’s study is based on a comprehensive survey of the households in an
Indian village for four years – 1957-58, 1962-63, 1974-75 and 1983-84. They have
ranked the households into income decile groups. We define the poor in a relative sense.
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In a particular year they comprise bottom 30 per cent of the population. Almost two third
of the population are poor at least once (Table 1). Only one third of the households are
immune to poverty.
Table 1 Incidence of Temporary and Chronic Poverty over Time
Particulars No. of households
No. of households covered in all surveys 111
No. of very severely chronic poor households (poor in all surveys) 5
No. of severely chronic poor households (poor in three surveys) 9
No. of moderately chronic households (poor in two surveys) 20
Number of temporary poor (poor in one survey) 41
No. of Non-poor households in all surveys 36
Incomes of the poor are very volatile. This is evident from Table 2 and 3.
Table 2
Status of Poor in the Subsequent Periods
Year No. of poor households
No. of households who escaped out of poverty in next period (period 2)
No. of households who fell back in poverty in the subsequent period (period 3)
1957-58
33 18 10
1963-64
33 20 3
1974-75
35 21 N.A.
Note : Calculated from Lanjouw and Stern (1991) Table 3 Dynamics of poverty
Percentage of households by income decile groups in current year
Percentage of households by income decile
I II III IV V VI VII VIII IX X
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groups in base year
I 0.35 1.73 1.03 1.38 0.69 1.38 1.03 1.03 0.35 1.03
II 0.31 1.56 0.94 1.25 0.94 0.94 1.56 0.63 1.56 0.31
III 1.14 2.00 2.00 1.43 0.86 0.00 0.57 0.86 0.28 0.86
IV 0.91 0.91 1.82 2.42 1.21 0.30 0.61 0.61 1.21 0.00
V 2.43 0.54 0.81 0.81 0.81 1.62 1.08 0.81 0.00 1.08
VI 0.27 0.27 0.00 0.81 1.62 0.81 1.62 1.89 1.08 1.62
VII 0.94 0.63 2.19 0.63 1.56 1.56 0.31 0.31 1.25 0.63
VIII 0.83 1.11 0.83 0.56 0.83 1.11 1.11 0.83 1.67 1.11
IX 0.34 0.69 0.34 0.34 0.34 1.38 1.03 2.07 2.07 1.38
X 0.69 0.34 0.00 0.69 0.69 0.69 1.03 2.07 1.38 2.41
Note : Calculated from Tables 7, 8 and 9 of Lanjouw and Stern (1991) Over a period of time, many poor households escape poverty and many non-poor are
pushed into poverty. At the same time many others stay poor. A number of questions
arise. What are the causes of chronic poverty? What are the factors that push the non-
poor into poverty? These questions have been examined in the Indian context by a
number of studies including Ojha (2007); Krishna (2006); Krishna (2004);and Lanjouw
and Stern (1991) among others. Chronic poverty in many cases is due to either loss of the
main earning member of the family or due to permanent disability. Another factor
responsible for chronic poverty is indebtedness due to unaffordable expenses on sickness,
injury and to a lesser extent on social ceremonies. Yet another reason for chronic poverty
is low productivity and high dependency ratio giving rise to the phenomenon of ‘earning
capacity poor’. On the other hand, according to these studies the non-poor are pushed into
poverty primarily because of sickness and injury, indebtedness, bad harvest, loss of
employment and lack of employment opportunities
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Traditionally microfinance has been viewed as a means of providing livelihood finance to
the poor. But money is fungible and it is not surprising to find that microfinance is
largely used for other purposes including consumption smoothing and repayment of past
loans. It is also used as consumer credit. In the next sub-section we shall discuss the role
of microfinance as a means of consumption smoothing for the poor households. Other
uses will be discussed in the subsequent sub-sections of this section.
II.1. Consumption smoothing
The effect of income shocks on consumption is quite large in case of the poor
households. Their levels of living are quite close to a subsistence level of living and large
cuts in consumption can bring distress to such households. Apparently welfare costs of
such fluctuations are quite large and the poor households are prepared to resort to costly
smoothing mechanisms if they are affordable. The poor households have limited choice
because social insurance systems are either non-existent or ineffective. To cope with the
income shocks they have to rely on the following:
• Savings
• Transfers from social support networks
• Sale of assets
• Borrowing from local credit markets
In case of savings, deviations from full consumption smoothing are likely to be
minimum; arguably deviations can even be zero in case the household sticks to the
average level of consumption even during the upheavals. Figure 1 refers to the
consumption pattern of a typical household which maintains a minimum level of level of
living with the help of savings. Its average income level is higher than the threshold level
but there are wide variations in income and consumption over time. Such variations are
quite usual in case of the rural households because of the triple whammy – low level of
earnings, irregularity and uncertainty - faced by them (see, e.g. Collins et.al, 2009).
Consumption variations are usually linked to income variations. They are also affected by
emergencies like major sickness.
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Figure 1 : Consumption Smoothing with the help of savings
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But manner in which a household have to cope with fluctuations in consumption brought
about by the fluctuations in income depends on its time preference. All households are
not far-sighted as in the case of the typical household depicted in Figure 1. Many
households particularly the myopic ones are unable to dissave because they have not
saved enough when the going was better. Transfers from social support networks (e.g.
reciprocal support from friends, relatives, neighbours, etc.) are not usually adequate.
They might have quite effective in the past. In contemporary India, they are not the rule;
they are exceptions (see, e.g., Abraham, 1986).
The other two options– sale of assets and local credit market - are quite costly and they
may not be available to all households. However, a large number of poor households use
them though to a limited extent largely due to inadequacy. Local credit market is
segmented, the poor and near poor lack access to commercial banking system for credit
facilities. The other segment comprises of informal moneylenders who have lost their
predominant position in the post-independence India due to changes in the legal and
political regimes. In view of lack of legal sanctions, enforcement of credit contracts is not
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an easy job for them. Before the advent of microfinance, chaotic conditions prevailed in
this segment of the rural credit market giving rise to lack of access to credit for the poor
and the near poor. Microfinance is now an option available in many parts of the country
but it is also quite expensive. Cost of microfinance would be a drag on the meager
resources of the poor and deviation from full consumption smoothing is likely to
significant. But the welfare costs of consumption fluctuations are very high in case of the
poor households. As such microfinance can provide an important means of smoothing the
consumption of the poor households across the risky events like unemployment, sickness,
etc. In the absence of microfinance, the deviation from full consumption smoothing
would have been much larger. In case of microfinance, there are two possibilities : (1)
average consumption level remains above the threshold level, this may be called the case
of indebtedness (Figure 2) and (2) average consumption falls below the threshold level,
the household may be temporarily below the poverty level and this may be called the case
of over-indebtedness (Figure 3).
Figure 2 : Consumption smoothing - Case of indebtedness
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Figure 2 depicts the case of a moderately myopic household. Its average consumption is
less than the average consumption of the far-sighted household because of the cost of
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borrowings. But the household does avoid slip into poverty despite substantial fall in the
income level during the downswing.
The case of an extremely myopic household is depicted in Figure 3. Either it does not
save during the upswing of its earnings or tends to purchase temptation goods and
services with the help of borrowed funds. In the event of emergencies, it is unable to
borrow since it has already borrowed up to the permissible level. Thus slip into poverty
during the downswing becomes inescapable.
Figure 3. Case of overindebtedness
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II.2. Income generating microcredit
For a number of decades, dependence of the poor households on the moneylenders for
borrowings was treated as a problem of indebtedness in the text books on Indian
economy. It was diagnosed as a major cause of poverty. The same view is still held by a
number of research studies on causes of poverty in developing countries like India (e.g.
Ojha, 2007; Krishna, 2006; Krishna, 2004; and Lanjouw and Stern,1991). In the context
of microfinance, there is a paradigm shift – it is now access to credit which is a paradigm
of the positive side; earlier in case of the moneylenders it was indebtedness – a paradigm
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of negative side. Enhancement of income generating activities is stated to be the raison
d’être of the microfinance. But money is fungible and it is not easy to control the end-use
of the credit by the lender. Prior to the advent of microfinance, a massive credit-based
programme – Integrated Programme for Rural Development (IRDP) - had been
undertaken in India with the sole objective of providing credit to the poor for business
investments. It ran into difficulties due to low recovery rate – it was just 41 per cent. But
in terms of usage, it sought to restrict the use of the credit for the intended purpose by
linking it to the acquisition of the productive assets. But returns to these investments in
most of the cases were not very high. The poor borrowers found it difficult to repay the
debt dues despite low and subsidized rate of interest. Why were the returns low? Like the
IRDP programme, this is also a key issue in the context of assessment of the impact of
the microfinance. However, the dominant view in the context of microfinance is that
returns are not low; they are very high and much higher than the prevalent rates of
interest of the MFIs. We, however, challenge this viewpoint.
The issue of returns to investment in case of microfinance has been addressed at three
levels: (1) given the concavity of the production function, the returns to investment are
expected to be very high in the wake of scarcity of capital (Armendariz and Morduch,
2005). (2) Anecdotal evidence is provided to show that enough opportunities exist for the
poor to obtain high return from the business investments (Goldberg, 2005). (3)
Experimental studies show very high returns to investment in case of the micro-
enterprises (De Mel, et. al.,2008 ).
Firstly, the issue is not the concavity of the production function. It is the question of
choice of technology. It is the question of low capital intensity of techniques vs. high
capital intensity of techniques. The issue has been discussed in development economics
in the context of conflicts between output and employment objectives (see, e.g., Sen,
1968; Stewart and Streeten, 1971). Despite higher employment potential, most of the
traditional techniques are not sustainable due to low returns. However, a few traditional
occupations have survived because of the special type of products like handicrafts etc.
There are also some occupations which are being run profitably by the micro-enterprises.
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Access to credit, therefore, opens limited opportunities and that too mostly for the skilled
persons.
Secondly, anecdotal evidence presented by numerous studies undertaken by the MFI
practitioners does not furnish unambiguous evidence. This is not to undermine the power
of positive anecdotes. But can they be replicated on a massive scale? Are the
opportunities not specific? For example, a number of petty traders are able to obtain quite
high returns to their investments even in an overcrowded market. Many others, on the
other hand, find the going quite tough. It is not the number of anecdotes which matters, it
is their relevance to the unskilled poor persons. This requires in-depth study of the
circumstances, opportunities, and the requisite skill levels. Moreover, the highly
successful portrayals presented by the selective anecdotal evidence do not find
corroborative support. In this context we refer to the diaries of the microfinance clients
reported in The Portfolios of the Poor (Collins, et.al., 2009) which are not supportive of
such a viewpoint.
The experimental studies on micro enterprises show very high returns to investment. It
averages in the range of 4.6-5.3 per cent per month (de Mel, et. al., 2008). The situation
is presumably set for a big role for microfinance in growth of micro-enterprises. But there
are a few caveats : (1) The studies also show wide variations in the returns. Almost 20 per
cent micro-enterprises show negative returns. (2) The studies cover those micro-
enterprises which are in existence for more than 5 years. (3) Success in micro-enterprises
depends crucially on the entrepreneurial traits which are observed in just one-third of the
target population. (4) Many enterprises covered by the studies are not free entry
enterprises. Certain levels of skills are a pre-requisite of the entry. (5) For establishment,
sustenance and growth, the micro-enterprises tend to rely on their own resources. For
growth, they tend to rely on reinvestment of their profits. In other words, micro-
enterprises with high returns do not tend to rely on credit for their business activities.
Lastly, when microcredit is used for business purposes, it is mostly in case of the
established micro-enterprises – many of them are non-poor (see, e.g. De Mel, et. al.,
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2008a). Arguably, such borrowings are for development; they are unlikely to be a part of
the poverty eradication strategy.
Repayment of past loans
This is one of important uses of microcredit. There can be two reasons: (1) substitution of
a high cost loan; and (2) unbearable over-dues of a previous loan. The second reason
seems to be more predominant. Microfinance is not cheap credit and informal
moneylenders are not necessarily very expensive. Very high rates of interest e.g. monthly
rate of more than 5 per cent in the informal credit market are usually for the gamblers and
drunkards; the usual rate of interest charged by the moneylenders lies between 1.5 and
5.0 per cent and the average rate is around 3.3 per cent per month i.e. a nominal rate of 39
per cent5 (Dreze, et. al., 1997). According to another study, it is 2 per cent flat per month
(Reddy, 2007). The informal moneylenders have an edge over the MFIs because of
flexibility and convenience. They do not have rigid terms and conditions; they adjust in
accordance with the borrower. Even their rates of interest are renegotiable and they are
usually renegotiated to the advantage of the borrower (see, e.g. Collins, et. al., 2009). Due
to lack of legal sanctions, their sphere is limited and as such they do not offer a big
challenge to the microfinance.
Like rescheduling of loans, the act of obtaining a new loan to repay the post loans usually
implies prolongation of indebtedness and in many cases it may just be a prelude to over-
indebtedness. In terms of Figure 2 and 3, it would tend to increase the gap between
average income and average consumption which is indicative of a bigger interest burden.
III. MEANING OF OVER-INDEBTEDNESS OF THE POOR
Microloans are discharged by a sequence of equal repayments (annuities) made over
equal periods of time. Each repayment (annuity) can be considered as consisting of two
parts: (1) interest on the outstanding loan and (2) repayment of a part of the loan. Let us
consider the case of a borrower who has to repay Rs.1000 every month for 12 months to
discharge her microloan of Rs.10,000. She has used the loan for investment in her
business and it has enhanced her monthly income by Rs.1200 for these 12 months.
19
Repayment is a smooth affair. Let us now consider another possibility. The same loan has
been invested by her and there shall be no returns in the first 6 months and thereafter
there would be a monthly return of Rs.1350 for the next 12 months. In this case monthly
rate of interest is around 3 per cent and monthly rate of return is more than 5 per cent. But
the household finds it difficult to arrange the first six instalments. Is it not a case of over-
indebtedness? Is it a case of sacrifice? Arguably, this is a case of over-indebtedness of
avoidable nature.
In many cases, the business ventures may not succeed. This has been one of the reasons
for low repayment rates in case India’s Integrated Programme for Rural Development
(IRDP). Non-repayment due to failure of activity has also been reported in case of Self
Help Groups (SHGs). A report prepared for the Planning Commission finds that 19
groups out of 99 groups had not made any repayment (Ekatra, 2007). One of the reasons
is failure of the income generating activity. The failures are reported in case of usage of
credit for buffalo-rearing, goat rearing and pig rearing. As a result the repayment rates
are quite low and there have been defaults by the borrowers.
It is probable that the income generating activity may fail but may not lead to non-
repayment. The MFIs have quite strong collection mechanism and the borrowers are
pressurized to make the repayments. Consider the case of a poor borrower who is just
living at a subsistence level. He takes a loan for an income generating activity and fails.
Debt burden would become unbearable for him and he would be pushed a sub-
subsistence level of living. This is undoubtedly a case of over-indebtedness.
Many MFIs provide credit exclusively for income generation activities. Despite this
restriction it is used for many other purposes including payment of other loans,
consumption smoothing and consumer credit. When it is used for payment of other loans
and the debt burden becomes unbearable then over-indebtedness is not caused by
microfinance. Nevertheless the problem exists.
20
In case of consumption smoothing, if the debt burden pushes the household below the
subsistence level then we cannot unambiguously say that microfinance has caused over-
indebtedness. The household may have to choose between sub-subsistence level of living
and deprivation. One has to move beyond microfinance to find a solution.
Access to credit is likely to lure many poor households into a debt trap. They cannot
resist the temptation. They may use the credit to purchase a fridge or a TV set or they
may spend the borrowed money on social celebrations. It may be a smooth affair for a
while. But trouble starts when some emergency like sickness or lack of employment
arises. An additional loan can then expose the household to over-indebtedness.
We have viewed over-indebtedness as a situation when a household is pushed below the
subsistence level because of the debt burden. Multiple borrowings to repay the past loans
or rescheduling of loans to adjust the overdues do not overcome the problem; the poor
borrowers just get some reprieve.
IV. CAUSES OF OVER-INDEBTEDNESS
Over-indebtedness has been attributed to usurious practices of the MFIs and multiple
lending by the MFIs. But over-indebtedness has also been found among farmers in India
who had borrowed from commercial banks at much lower rates of interest. The
situational context of the borrower is of crucial importance. Role of the ‘for profit’ MFIs
and the situational context of the borrowers need to be examined to trace the causes of the
current crisis of over-indebtedness. One more factor has been suggested in the previous
section: failure of the loan-financed business ventures of the poor. We shall discuss these
factors in this section.
IV.1. Rate of interest of the MFIs
The MFIs state their rates of interest in different forms. In some cases, it is flat rate of
interest. Others calculate interest charge on reducing balance basis. The frequency of
instalments also differs. In some cases, it is monthly instalment. In case of others, it is
21
weekly instalment. Then there are additional charges. A number of MFIs charge
processing fees and/or upfront fees.
In Table 4, we present comparable rates of interest of a number of MFIs in India. We
have attempted to make them comparable by calculating the effective rate of interest. The
rate of interest actually earned in a year is called the effective rate of interest.
Table 4
Effective Rates of Interest charged by Indian MFIs in 2008-09
Name Type Terms Effective rate of
interest
Cost of
borrowin
g
Operatin
g
expense
ratio
AWS NGO-MFI 21% reducing
balance,
upfront fee :
2%
28.00%
(24.95%)
10.64% 2.85%
Adhikar NGO-MFI 10% flat,
processing fee
: 3.5%
30.0% (26.29%)
11.26% 10.32%
Annapurna NBFC 15% flat,
monthly
instalment
30.12%
(26.62%)
N.A. N.A.
AFSL NBFC 24.13-27.29%
reducing
balance;
processing fee
: 4%
38.37-42.85%
(32.57-35.79%)
11.86% 12.92%
AML NBFC 12.5-15% flat;
upfront fee
:1.15-2.5%
26.58-39.51%
(23.62-33.40%)
9.43% 8.04%
22
BMPL NBFC 15% flat 30.12%
(26.62%)
8.47% 10.53%
BFL NGO-MFI 15% reducing
balance;
upfront fee :
1%
18.30%
(16.93%)
9.28% 4.39%
CMC Section 25
company
27% reducing
balance
30.91%
(27.00%)
13.51% 14.08%
CReSA NBFC 12.5% flat,
upfront fee :
1%, processing
fee : 2%
31.92-34.74%
(27.78-29.90%)
10.44% 8.08%
CDC NGO-MFI 18% reducing
balance
19.56%
(18.00%)
10.92% 3.72%
Equitas NBFC 10-14% flat 20.48-29.39%
(18.70-25.90%)
14.42% 12.14%
EMFIL NBFC 15% flat 30.12%
(26.62%)
7.69% 13.07%
FFSL NBFC 12.5-15% flat,
processing fee
: 2%
31.92-38.04%
(27.78-32.34%)
12.75% 5.71%
GSGSK NGO-MFI 3 year loan,
13% reducing
balance,
service charge
: Rs. 250.00
18.0%
(16.63%)
9.6% 2.02%
GFSPL NBFC 50 week, 12%
flat; upfront
fee : 1% to 3%
28.15-33.84%
(24.86-29.23%)
11.21% 10.40%
GVMFL NBFC 10
week/100week
110.68%/29.12
%
12.08% 13.10%
23
; no
interest/12%
flat; upfront
fee : 7.5%/3%
(75.05%/24.86%
)
GU NGO-MFI 24% reducing
balance
26.82%
(24.91%)
9.48% 4.22%
HiH NGO-MFI 12% reducing
balance;
upfront fee :
3%
19.36%
(17.83%)
10.85% N.A
IDF NGO-MFI 15% reducing
balance;
upfront fee :
2.25%
21.19%
(19.38%)
9.21% 4.30%
IIMF Co-operative
society
18% reducing
balance;
processing fee
: 1%
21.87%
(19.94%)
9.77% 5.38%
JFSPL NBFC 24 to 33%
reducing
balance
26.83%- 38.48%
(24-33%)
10.38% 28.32%
Janodaya NGO-MFI (in
the process of
transformatio
n as NBFC)
14% flat,
monthly
instalment
27.96%
(24.91%)
7.97% 7.94%
MMFL NBFC 18-21%
reducing
balance,
weekly
instalment
19.69-23.32%
(18-21%)
12.97% 3.62%
PMACS Co-operative 18% reducing 24.25% 11.99% 2.25%
24
society balance;
processing fee
: 2%
(21.91%) (cross-
subsidy)
RASS NGO-MFI 17% reducing
balance;
upfront fee :
1%
20.67%
(18.94%)
10.49% 2.30%
(cross-
subsidy)
RGVN NGO-MFI 10% flat; 5%
upfront
security
deposit
21.55%
(19.68%)
11.10% 6.76%
RMED NGO-MFI 15% flat;
weekly
instalment;
membership
fee : Rs.100;
processing
charges : Rs.
100
38.04%
(32.34%)
10.30% 5.6%
SAADHN
A
NGO-MFI 15% flat;
weekly
instalment
32.41%
(28.14%)
10.73% 8.41%
SUWS NGO-MFI 15% flat,
weekly
instalment;
10% security
deposit
40.53%
(34.14%)
7.06% 9.11%
Sahara
Uttarayan
NGO-MFI 12.5 to 15%
flat; security
deposit : 10%;
monthly
29.67 - 36.92%
(26.85-31.83%)
10.62% 7.64%
25
instalment
SRFS Section 25
company
16% reducing
balance
17.23%
(16%)
9.56% 3.32%
SKDRDP NGO-MFI 15% reducing
balance;
service
charges : 1%
18.30%
(16.93%)
7.78% 3.44%
SKSMPL NBFC 23.6 and 28%
reducing
balance
26.55- 32.21%
(23.60-28.00%)
9.58% 7.96%
SMILE NBFC 12% flat 23.70%
(21.46%)
11.12% 2.70%
SONATA NBFC 18% flat;
processing fee
: Rs. 100
39.45%
(33.72%)
13.02% 11.49%
SSFL NBFC 21-24% ,
declining
23.14 -26.82%
(21-24%)
11.48% 5.56%
SMCS Section 25
company
18% reducing
balance;
processing fee
: 1%
21.87%
(19.94%)
10.20% 2.70%
SSCI NBFC 13.5 to 15.0%
flat
28.89- 32.4%
(25.44-28.14%)
8.59% 7.17%
UFSPL NBFC 24-28% ,
reducing
balance
26.82-31.89%
(24-28%)
9.60% 22.63%
VFSPL NBFC 12.5% flat;
security
deposit : 10%
33.20%
(28.75%)
8.24% 10.65%
WOMAN NGO-MFI 12% flat; 24.65% to 9.39% 7.54%
26
processing fee
: Rs. 25 to Rs.
100
26.10%
(22.24-23.80%)
Source : Crisil (2009), India Top 50 Microfinance Institutions, www.crisil.
High rates of interest in case of microfinance are usually justified due to high transaction
costs. But the data does not support this claim (Table 4). The rates of interest of many
MFIs are much higher than their cost recovery levels. Prior to the crisis, high profit
potential of the MFIs had generated a boom in the share market for them
However, it is argued that these rates of interest are lower than the rate of interest of
traditional moneylenders. But the loan products of the MFIs are quite different. The MFIs
demand regular repayment with little flexibility. The moneylenders adopt a very flexible
approach. Due to lack of legal sanctions, they cover a very small part of the market and
usually lend very small amounts much smaller than the ‘microloans’. Transaction costs
are very high for such loans. There is one example of a loan product of an MFI which is
comparable. GVMFL, for example, has offered a 10 week loan of Rs. 1000 (around $22)
by charging one time fee of 7.5 per cent. The effective rate of interest in this case is
110.68%. But the example of GVMFL has not been emulated. Apparently, the cost of
transaction is quite high. It seems that in such a sub-market, the informal money lenders
would hold the sway. In other words, microfinance caters to $500 (around Rs. 22,000)
loan market; $50 (around Rs. 2,200) market, by and large, remains the preserve of the
informal sector moneylenders. The segmented nature of these two markets emphasizes
their non-competitive nature and, therefore, the argument of the ‘for profit’ MFIs that
their rates of interest are lower than the informal sector is implausible. Moreover, there is
a basic difference – due to lack of legal sanctions, the informal sector moneylenders
operate with restrictions. Arguably, like the ‘for profit’ MFIs if they have legal sanctions
then the MFIs could not compete with them even in the $500 loan market which is the
mainstay of the MFIs.
27
To sum up, the data on effective rates of interest shows that a number of ‘for profit” MFIs
have been following usurious practices. This is evident from the Tables 4 and 5.
Table 5
Effective Rates of Interest charged by Types of Indian MFIs in 2008-09 (No. of MFIs)
Effective Rate
of Interest
NGOs Non-Banking Finance
Companies (For profit )
Section 25
companies
Co-operative
societies
Less than 24% 8 2 2 1
24-30% 3 6 1
30-36% 3 10 1
More than 36% 2 2
Source : Table 4
IV.2. Multiple lending and rescheduling of loans
Difficulties to repay the instalments in time generate a demand for additional loans.
Increased competition among the MFIs has made it easy for the borrowers to seek a
number of loans. Many MFIs, on the other hand, encourage rescheduling of the loans
when they find that over-dues in case of certain clients are mounting. This gives a
glittering touch to the balance sheets by keeping portfolio at risk (PAR) at negligible
levels. They get a reprieve but the problem persists and becomes more acute because of
the higher annuities which they have to dole out by the poor borrowers.
IV.3. Beyond moneylender’s strategy
Rural indebtedness had been an important topic included in the text books on Indian
economy till the seventies. It lost its eminence because of the changes in the legal and
political regime. Professional moneylenders almost disappeared from the rural scene. The
segment of the credit market which used to serve the poor and the vulnerable had become
quite chaotic. Part-time petty moneylenders in the guise of friends and relatives have
filled a part of the void. Despite lack of credit facilities for the poor and the vulnerable
the return of the moneylender has not been an acceptable proposition. The reason is
simple : level of indebtedness had come down drastically. Darling’s famous description
28
– a peasant is born in debt, he lives in debt and dies in debt – had lost much of its
validity. Current crisis of over-indebtedness takes us back to moneylender’s strategy of
keeping their poor borrowers in a debt trap a la Darling. Have the MFIs, intentionally or
unintentionally, been implementing the moneylender’s strategy in which they have
failed? Over-indebtedness is not a part of the moneylender’s strategy because no one
would kill the goose which lays a golden egg. The MFI’s lack the moneylender’s acumen
because they have failed to overcome the problems of ‘adverse selection’ and ‘moral
hazard’. The problem of ‘adverse selection’ has emerged due to (1) use of loans for the
purchase of temptation goods; (2) lack of control over the end use of the borrowed funds
by the poor households; and (3) provision of loans to the poor households for business
investment irrespective of opportunities and capabilities. Further the problem of ‘moral
hazard’ has occurred due to the poor borrower’s purchase of less essential goods with the
help of borrowed money which are unaffordable at their income levels.
IV.4. Whither loan-funded micro-enterprises for the poor and vulnerable?
The experimental studies on micro enterprises show very high returns to investment (De
Mel, et. al., 2008). But the poor households do not own the micro-enterprises. Why can’t
the poor establish the micro-enterprises? It is argued that they lack capital. Arguably,
microfinance can alleviate poverty by providing credit to the poor. Indeed this is the
raison d’être of the microfinance. But can the loan-funded newly established micro-
enterprises perform? Can the targeted households run such micro-enterprises? Have they
the requisite traits? Experimental studies show that almost two-thirds of the self-
employed persons lack such traits. This is not an unexpected result because in most cases,
self-employment is not by choice. Lack of wage employment pushes a large number of
unskilled workers to self-employed jobs.
The experience of providing credit to the poor borrowers under the various schemes as
well as by the MFIs does not match the optimism of the proponents of microfinance on
the basis of anecdotal evidence. The reports on the working of IRDP and on the working
of SHG-linked MFIs are quite revealing. For example, in case of cattle rearing (which is
of course not a skilled job) the reports of deaths and poor quality of the cattle are
29
unusually high. Arguably, a number of such loans are obtained under false pretences.
Whether it is a case of business failure or of the dissipation of the loan money on the
purchase of temptation goods and services, the consequences are severe for the poor
households. They are either over-indebted or they default if it is not difficult. It was not
difficult to default in case of loans under the IRDP, the default rate was as 59 per cent –
the recovery rate was just 41 per cent. Given the strong collection machinery of the MFIs,
default is no longer easy – resort to coercive methods is a distinct possibility. Over-
indebtedness is the outcome.
Concluding Observations
In the context of poor borrowers, it is imperative to ask: is microfinance a problem or a
solution? After all, like the informal moneylenders the microfinance particularly ‘for
profit’ MFIs have been exclusively engaged in the business of money-lending. In the
realm of public policy, return of moneylender is unthinkable. Microfinance, on the other
hand, has a positive and pro-poor image because of the contributions of the socially
oriented leaders of the NGOs who have initiated and nurtured the microfinance
movement in its formative years. At this juncture, it may be argued that over-
indebtedness among the poor borrowers is just an aberration. Baby (microfinance) cannot
be thrown with bathwater (over-indebtedness).
Is over-indebtedness just an aberration?Are all the borrowers of the MFIs likely to over-
indebted? To answer this question, we divide the borrowers of the MFIs in 4 categories :
(1) far-sighted and high ability (non-poor) borrowers; (2) far-sighted and low ability
(poor and near poor) borrowers; (3) myopic and high ability (non-poor) borrowers; and
(4) myopic and low ability (poor and near poor) borrowers. In the context of over-
indebtedness, we shall focus on the fourth category i.e. myopic and low ability (poor and
near poor) borrowers. However, there exists considerable empirical evidence which
shows that this category is likely to under-represented among the microfinance clients.
The poorest of the poor are not preferred clients of the ‘for profit’ MFIs. In other words,
over-indebtedness is the problem of a few clients.
30
But what does the data show? As argued earlier, measurement of over-indebtedness is a
difficult task. But available evidence suggests that over-indebtedness is not a marginal
problem. Expansionary and aggressive policies of the ‘for profit’ MFIs in the saturated
areas like Andhra Pradesh has given rise to the phenomenon of multiple lending. It has
resulted in high incidence of over-indebtedness. Easy access to credit has given rise to
over-borrowing by the myopic poor and near poor households.
We have emphasized the role of microfinance as consumption smoothing device in the
context of seasonal, cyclical, life cycle and idiosyncratic risks. But it gives rise to
indebtedness and fall in average consumption level (Figure 2). Looking at the experience
of the advanced countries, one finds that social insurance has been used for coping with
the income shocks arising due to unemployment and sickness. In other words, it is
imperative to ask : Do the poor need credit or transfers? And there is a flip side of access
to the credit. It may not be used for coping with the income shocks arising to the various
risks faced by the poor households; they may use it for the purchase of temptation goods
and services.
Despite the missionary zeal of its founding fathers, there is lack of unanimity with regard
to its role in poverty alleviation. Even after more than three decades of microfinance
movement, impact of microfinance on poverty is still a matter of debate6.
Is microfinance a good or a bad for the poor? Our analysis has depicted at least two
situations where microfinance is a bad. Loss making and loan-financed micro enterprises
would push the poor and the vulnerable below the subsistence level. Loan-financed
expenditures on purchase of temptation goods and service which are unaffordable for the
poor and vulnerable would also have the same implication.
Notes
1A large number of SHGs have been established by the NGOs for which the NABARD
provides them grants. Ratios of grants released and grants sanctioned in various states of
India give an indication of the level of success achieved by the NGOs in establishing the
31
SHGs (Appendix Table 1). Establishment of the SHGs is just a first step. Their success
depends on the repayment levels which are in many cases below the threshold level.
Appendix Table 2 gives an inter-state comparison of their recovery performance which
shows that the SHG movement has yet to be nurtured in a number of states and the ‘for
profit’ MFIs are not attracted to these states.
2Over-indebtedness among the poor occurs when a borrower is unable to pay her debt
dues while maintaining a subsistence level of living; the debt burden pushes her below
the subsistence level. It represents a more severe situation than indebtedness which has
been aptly described by M. L. Darling in these words : a peasant is born in debt, lives in
debt and dies in debt in the context of pre-independence India. In the post-independence
India, the situation had undergone a major change due to the changes in the legal and
political regimes. The problem of indebtedness was due to the dominance of the
moneylenders in the rural credit market. But their share had drastically come down from
a level of 61 per cent in 1960-61 to a mere 16 per cent in 1991-92.
3 IRDP is arguably a forerunner of microfinance in India. Till March 1999, total credit
mobilized by this programme was Rs.225.42 billion. Total investment including subsidy
was Rs.339.53 billion. Number of beneficiaries was 54 million households. Arguably it
was not implemented efficiently. The recovery performance was quite poor; it was a mere
41 per cent. The programme had limited success as far its impact on poverty was
concerned.
4 An annuity is a sequence of payments, usually equal in size, and made at equal intervals
of time. Although the term ‘annuity’ indicates annual payments, its meaning in common
use has been broadened to include payments at regular intervals which may be a week or
a month.
5These rates have calculated from Dreze (1997) .
6To substantiate our argument, we furnish Appendix Table 3 derived from NSS data on
consumer expenditure and size of land holdings.
7The debate centres on the interpretation of the data sets obtained from extensive quasi-
experimental surveys conducted during nineties in Bangladesh (Pitt and Khandekar,
1998; Morduch, 1998; Roodman and Khandekar, 2009; Pitt, 2011). The method of
identification of the poor in these studies raises a number of questions. According to the
32
criterion based on land holding/ownership, the poor (target group) comprise 85 per cent
of the population. Arguably this method is not reliable particularly when only 15 per cent
are excluded. The landless and marginal land-holders, on the one hand, and the poor, on
the other hand, are widely different categories.6 Type I and type II errors are likely to be
considerable. Type I error implies the exclusion of the poor from the list and type II error
implies inclusion of the non-poor. Target population comprises of participants of
microfinance programme and non-participants. Comparison of variables like educational
level across the participants and non-participants suggests that the extreme poor are
under-represented among the participants of the microfinance programme. Thus on the
one hand, there are type I and type II errors. On the other hand, the extreme poor are
under-represented among the participants. Can the results based on such an exercise be
alluded to as the impact of microfinance on the earnings of the poor?
Appendix Table 1
Grants released and grants sanctioned for establishment of the SHGs in selected states as
on March 31, 2010
State Grants released (Rs. Million)
Grants sanctioned (Rs. Million)
Grants released as percentage of grants sanctioned
Haryana 2.932 13.197 22
Punjab 2.141 9.711 22
Himachal Pradesh 10.787 23.300 46
Jammu & Kashmir 1.676 3.546 47
Rajasathan 12.517 32.162 39
Bihar 13.731 42.515 32
Jharkhand 6.075 12.495 49
Orissa 9.499 16.983 56
West Bengal 13.383 34.019 39
Madhya Pradesh 13.591 40.674 33
Chattishgarh 6.833 13.433 51
Uttar Pradesh 85.188 288.079 30
Uttaranchal 5.424 26.378 21
Gujarat 14.486 42.549 34
Maharashtra 79.337 145.009 55
Karnataka 13.877 28.717 48
Tamilnadu 14.795 23.239 64
33
Source : NABARD (2010), Status of Microfinance in India 2009-10, Mumbai : National Bank for Agriculture and Rural Development Appendix Table 2 Recovery Performance of Public Sector Commercial Banks Loans to the SHGs during 2009-10
(Total outstanding loans against SHGs in Rs. Million)
Percentage of recovery to demand from the SHGs State
Less than 70 % 70%-90% More than 90%
Haryana 62.78 (2) 898.72(4) 82.64(9)
Punjab - 97.30(5) 378.34(10)
Himachal Pradesh 2.93(2) 28.2(1) 504.84(8)
Jammu & Kashmir - 36.20(2) 8.10(1)
Rajasathan 18.84(3) 1947.85(5) 636.35(5)
Assam 1998.40(4) 452.09(6) 571.14(4)
Bihar 2187.56(8) 1500.29(4) 76.36(3)
Jharkhand 418.54(5) 1296.02(7) 736.99(3)
Orissa 1164.00(5) 2882.97(7) 5793.41(5)
West Bengal 2854.19(4) 2483.32(8) 2(1952.24)
Chattisgarh 201.85(3) 82.23(5) 1008.81(7)
Madhya Pradesh 1753.65(10) 1046.03(4) 382.78(7)
Uttarakhand 84.44(3) 162.61(4) 139.68(2)
Uttar Pradesh 8041.74(7) 1824.41(6) 177.02(6)
Gujarat - 672.58(8) 396.17(7)
Maharashtra 1760.76(6) 2736.83(7) 4720.24(8)
Andhra Pradesh 60.28(1) 9467.44(5) 76477.87(14)
Karnataka 33.69(3) 430.30(4) 12367.81(12)
Kerala 33.96(1) 1827.74(2) 4322.61(9)
Tamilnadu 1097.99(2) 3375.33(7) 26279.37(9)
Note : Numbers of banks are given in the parenthesis. Source : NABARD (2010), Status of Microfinance in India 2009-10, Mumbai : National Bank for Agriculture and Rural Development. References
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