Ramesh S Arunachalam
Rural Finance Practitioner
A very interesting event is happening in Washington D C on Thursday, the 9th of December 2010. The Event - The Global Implications of India’s Microcredit Crisis - features a very distinguished group of people including: David Roodman, Senior Fellow, Center for Global Development; Stephen Rasmussen Technology Program Manager, CGAP, World Bank; Swaminathan Aiyar, Consulting Editor, Economic Times, Contributor, Times of India and Research Fellow, Cato Institute; Liliana Rojas-Suarez, Senior Fellow, Center for Global Development; and Beth Rhyne, Managing Director, Center for Financial Inclusion, ACCION International. It will be moderated by Lawrence MacDonald, Vice President of Communications & Outreach, Center for Global Development. A brief write up for the event notes …
“The largest crisis in the history of microfinance is now unfolding in India. After five years of growth so fast it has been described as “indescribable,” and after a lucrative initial public offering (IPO) by the leading firm, the government of the state of Andhra Pradesh has cracked down. Amid reports of microcredit-linked suicides, the state has urged borrowers to stop repaying, and millions have heeded the call. Bankruptcies of some of the world’s largest microcreditors are now a realistic possibility.
What is the reality of microcredit in India? Is the backlash an engineered campaign to protect a government-run (and World Bank–financed) program from private-sector competition? Or has the fast growth in credit ensnared the poor in debt? Some of each?
And what lessons does the crisis hold for actors worldwide, including microfinance institutions and investors ranging from the World Bank to Kiva users? When is microcredit—and investment in it—too much of a good thing?”
In this post, I look at available[i] data from the Mix Market (www.mixmarket.org) and try and provide a brief analysis of whether indeed there was fast growth in credit in Andhra Pradesh as argued above. I hope my post will also provide some data and key trends for the speakers at tomorrow’s interesting forum and thereby enable them to get a (better) feel for the ground level reality…in terms of what has happened in Andhra Pradesh…during the last 5/6 years…I also raise some questions that I hope will catch the attention of the various speakers at the event and other stakeholders including regulators in India…I only wish that I were there at the event and good luck to everyone speaking at the event…It promises to be a great event…
Just a point of clarification…While I have previously looked at the growth in terms of number of active borrowers earlier, I now do so also using the measure of Gross Loan Portfolio (in US $) and the some interesting trends are available. Read on…
· Growth of AP Headquartered MFIs By Client Outreach: First, all AP headquartered[ii] MFIs added nearly 1,28,50,012 clients (12.85 million clients) in the period April 2005 – March 2009 and of this, as much as 1,21,99,342 clients (12.19 million clients) were added by the big 6 AP headquartered MFIs – this accounts for nearly 94.93% of the total clients added by AP headquartered MFIS during the period April 2005 to March 2009
· Growth of AP Headquartered MFIs by Gross Loan Portfolio: Second, all AP headquartered MFIs increased their gross loan portfolio (GLP) by nearly 2,71,25,41,121 US Dollars (2.712 Billion $) in the period April 2005 – March 2009 and of this, an increase of as much as 2,57,78,40,306 US Dollars (2.577 Billion $) was due to the big 6 AP headquartered MFIs - which accounts for nearly 95.03% of the total GLP increased by AP headquartered MFIs during the period April 2005 to March 2009
· Big 6 AP Headquartered MFIs Appear to Be Important Drivers of Growth Among ALL AP Headquartered MFIs: Third, from the above, it is clear that the big 6 MFIs headquartered in AP (SKSML, Spandana, Share, Asmitha, Basix and Trident) are the major growth drivers among all the MFIs headquartered in AP (which is the nerve centre of the present Indian micro-finance crisis)
· Dominance of Big 6 AP Headquartered MFIs in 2009: Fourth, in fact, the BIG 6 as I call them, accounted for 94.70% of the number of active borrowers of all AP headquartered MFIs in 2009 and 94.79% of the gross loan portfolio (in US$) of all AP Headquartered MFIs in 2009 – which tells you their dominance among all MFIs headquartered in AP
· Dominance of Big 6 AP Headquartered MFIs During 2005 – 2009: Fifth, irrespective of the year in question between 2005 – 2009, the big 6 AP headquartered MFIs account for at least 90% (with one case of 89.92%) of the number of active borrowers and gross loan portfolio of all AP headquartered MFIs. Specifically, during the period, 2005 – 2009, it can be said that the big 6 AP headquartered MFIs accounted for a very significant proportion of number of active borrowers (range of 91.26% – 94.70%) and gross loan portfolio (range of 89.82% - 94.79%) of all AP Headquartered MFIs. Therefore, it can be concluded rather safely that much of the growth in number of active borrowers and gross loan portfolio of all AP headquartered MFIs came from the big 6 AP MFIs – SKSML, Spandana, Share, Asmitha, Basix and Trident
· Big 6 AP Headquartered MFIS Experienced Burgeoning Growth During April 2007 – March 2009, Both In Terms of Clients Outreach and Gross Loan Portfolio: It is also pertinent to note that the big 6 AP headquartered MFIs have added a very significant number of active borrowers during the period April 2007 to March 2009 – 9.76 million clients were added by them while their other AP headquartered peers added just 0.46 million clients during the same period. Likewise, the big 6 AP headquartered MFIs have increased their gross loan portfolio very significantly during the period, April 2007 to March 2009 – the GLP increased by the Big 6 was US $ 2077 million (US $ 2.07 Billion) while their other AP headquartered peers added just US $ 92.45 million during the same period
· Big 6 AP Headquartered MFIs Doubled Average Gross Loan Portfolio (GLP) Per Active Borrower During April 2005 – March 2007: It is also interesting to note that the Big 6 MFIs, increased the average GLP per active borrower from US $ 103.32 in 2005 to US $ 194.11 in 2009 – what must noted that this is the average for all 6 Big MFIs and when each of these 6 are looked at individually, the average GLP per active borrower in 2009 shoots up to even US $ 235, which is more than double the GLP of 2005 per active borrower. It would also be interesting to compare this with other state MFI averages and all India averages and I will be doing this later as a lot of data has to be verified and compiled
· ALL Big 6 AP Headquartered MFIS are NBFCs: All the big 6 AP headquartered MFIs are NBFCs, regulated and supervised by The RBI
Several questions arise from the above:
1) Why did the Big 6 AP Headquartered MFIs grow at the rates they grew? What were their motivations?
2) How did they acquire their clients when they grew at this rapid pace?
3) Who (investors, banks or others etc) gave them the resources to grow at this pace? This needs to be better understood especially for the growth during April 2007 – March 2009, which was extremely rapid indeed!!!
4) What was the role of policy in aiding this growth?
5) Given that the Big 6 AP MFIs are all NBFCs - which are said to be well regulated and supervised financial intermediaries - did NOT this scorching pace of growth (as it was happening) raise any alarm bells for various stakeholders including regulators?
6) What lessons can we learn from the above for the various stakeholders?
Again, as I have said before, the idea in asking the above questions is not to malign any institution or stakeholder. As the Washington event note said, this is indeed “The largest crisis in the history of micro-finance” and therefore, it is imperative that we continue to ask critical questions (in an objective balanced manner) and obtain answers that would help all stakeholders (including regulators) learn from the unfolding crisis…
Have a nice day!
[i] In my opinion, the best available PUBLISHED data on MFIs in India and elsewhere is Mix Market as it is (internally) consistent and seems reliable/valid. Although, I would have preferred completely disaggregated data (State wise and District wise) for all MFIs, I have had to use surrogates to make my analysis. Nonetheless, I very much appreciate the fact that we at least have a data set like the one at Mix Market. My sincere thanks to them
[ii] It is presumed and perhaps correctly that AP headquartered MFIS will have their largest concentration in their home state and the same analogy is consistently applied for other state headquartered MFIs. This seems fine from the overall perspective of understanding growth of MFIs.