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April 17, 2013

In Conversation with Economist Rohini Pande

By Timothy Ogden

Part of our series, In Conversation with FAI

Timothy Ogden and Economist Rohini Pande discuss how standard microcredit may undermine business investment in this FAI Video interview.

Transcript of the Conversation

Timothy Ogden: One of the questions we care about is, “What difference does microcredit make?”  One of the concerns that people have talked about a lot in the last few years is microenterprises and why they don’t grow. A lot of that is focused on microenterprises themselves. But it’s possible that it is actually about what is being delivered to those microenterprises. So, you and Erica Field conducted an experiment to look at that. Can you tell us something about that?

Rohni Pande:  Sure, so, as you said, when we started thinking about the needs of microfinance clients-–and we were working in Calcutta where pretty much every microfinance client is a microentrepreneur, typically doing some kind of small scale vending business or selling saris or tailoring-–it was clear that they need the credit to run their business.  But it also seemed like they had some flexibility on how they could use the money. And when we talked to them some more their response always was that how they use the money depended on the form in which they got it. And then when we went back and started talking to the MFIs, we realized from the perspective of the microfinance institution they think a lot about repayment when they think about lending to the poor. Their biggest concern is to not have default, to have a high repayment rate, because that determines their credit rating which determines their access to capital in the near future. As long as the client is paying back on time and have high repayment they don’t actually think very much about what the client, on the other hand, spends a lot of time thinking about---how exactly to use the money.  The more we talked to the clients the more it seemed like the tradeoff they faced was that if they have to start repaying very soon after they got their loan they felt it was too risky to put the money in anything other than working capital...[READ THE COMPLETE TRANSCRIPT]

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