Ramesh S Arunachalam
Rural Finance Practitioner
The biggest issue that I see in the current/past AP crisis is the reluctance of the Indian Micro-Finance Industry to accept reality – in fact, there are many people who are still pretending that everything was (is) perfectly alright with Indian micro-finance and all problems that are there today are mainly due to the AP Ordinance. And criticism has always been seen as bad news and bearers of Bad News in the Indian micro-finance industry are (were) banished and/or boycotted…
That is fine but if the Industry really wants to overcome the present crisis, it must come clean and throw out all skeletons from the cupboard. That alone will enable the Industry to restore its creditability in the eyes of various stakeholders including its clients and civil society at large and more importantly, prevent problems from re-occurring. Let us set the record straight – what were are seeing in Andhra Pradesh today is an amplification of the 2005/6 crisis and make no mistake, if the root problems of the present crisis are not solved, the same crisis will re-appear, irrespective of the temporary truce and rehabilitation packages…
In 2005/6, we heard comments like, yes, the “not-so-good practices” are true but we cannot afford to expose MFIs as then, regulation could become stifling and of course, with riders like that, “the poor will loose access to critical financial services”. Likewise, when serious issues including governance violations in a very large MFI (having significant AP Operations) were pointed out as early as in march 2010, the Professor who did so, was severely criticized and even (personally) attacked in some (e group/ email) discussions. And by and large, the industry kept mum on the critical issues that were raised. Some industry experts even raised the issue of what purpose would such analyses serve and hinted that they are not productive in any sense of the word…they even dismissed the highlighted governance limitations as common to all Corporate Businesses…I am sure these words come back to haunt the experts now as much water has flown under the bridge thereafter.
The consistent argument here in India
And it is precisely for this reason that I would like to relate a small story (courtesy, Wizard of Id)…
A king was sitting in his Court Chamber and a guard walked in and said, Sir Rodney has come with the battle report
The King to Guard: Send him In…
Sir Rodney walks into the King’s Court Chamber and pays his respects
King to Sir Rodney: Before you start sniveling you mush face, let me remind you of an old Roman Custom. Bearers of Good News were rewarded with wine and wealth. Bad news brought unmentionable suffering to the bearer. So, what is the Battle
Sir Rodney to King: Your Highness, I am tickled pink to tell you that your worthless fiefdom, unruly peasants and mucky swamplands are now the RESPONSIBILITY of the Huns (Enemy)
So, the moral of the story is clear and the Indian Micro-finance Industry must learn to accept BAD NEWS as good news as it can then start to clean up (its act) – Some people think it is too late but I for one, the eternal optimist, still believe that things can change for good if the industry does an honest analysis of what has gone (horribly) wrong and why, especially since 2005/6 and tries to set in motion, some quick and appropriate remedial measures to the present crisis, which has been a storm quietly brewing for several years.
Indeed, it is not so simplistic, as some people write …that the present crisis is in fact a competition game between the SHG Bank Linkage and MFIs and the current delinquency is only because of the AP government ordinance. Things are much more deeper than that and irrespective of government action against MFIs, it is quite clear that (serious) delinquencies were perhaps being shrouded by the fascinating GROWTH Story of Indian Micro-finance and the non-transparent (MIS) systems on the ground. Add to this the issues of multiple lending and ever greening and shared JLGs and clients, there is a handful that the Indian micro-finance industry must come clean on.
In fact, the suicides were a good indication of the helplessness of many micro-finance clients – caught in a multi pronged web of huge levels of indebtedness and lack of serious livelihood options, they seemed to have nowhere to go and nothing else to do. They had run out of options as the previous strategy of borrowing from ‘Paul’ to pay ‘Peter’ was also impossible - as even the local money lender, who had, on several occasions, lent them emergency money to repay MFI installments at 10% per month[i], was now not willing to extend any credit to them.
Given this precarious situation, the present crisis will not go away unless solved at the root and any attempt to superficially deal with the problem means that the Indian Micro-finance Industry and all of us, are perhaps prolonging the Microfinance bubble from bursting…
[i] Arunachalam, Ramesh S (2010), Forthcoming, “Analysis of Repayments Made by Borrowers with Multiple Loans: Lessons from the Indian Context”.
Thanx Ramesh. As usual excellent. I took the liberty of re-publishing it in my own blog. Of course with proper credits
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