Won't Someone Think of the Borrowers?

The Andhra Pradesh (AP) microfinance crisis looks set to drag on. In the wake of proposed national legislation to regulate microfinance across the country, the AP government has signaled that it will fight to maintain its current controls and limits on the industry.

Those limits have all but dried up microfinance in AP, a state which accounts for about 40 percent of all microcredit lending in India. I recently wrote a piece for the Harvard Business Review suggesting a way in which the AP crisis could negatively impact the global microfinance industry.

In the discussion that followed that piece, a reader pointed out that focusing on the macro impact of the crisis obscured the very real and negative micro-impact—the impact on people in AP who have suddenly been effectively cut off from access to microcredit. By one estimate, in the 6 months preceding the crisis, MFIs disbursed more than $1 billion in loans in AP. In the 6 months following the crisis that fell to less than $2 million. Here’s a summary of that perspective from an interested party—Legatum, a major investor in Share Microfin, an AP-based MFI.

While Legatum has an obvious financial interest at stake, I think they raise some very important points that haven’t received a lot of attention since the AP crisis began. During the run-up to the AP law, there was a lot of media attention to the impact of microcredit on borrowers, with allegations of debt traps, suicides and coercive practices.

Since then however, the global media seems to have forgotten that microcredit, or lack thereof, might have some impact on the lives of borrowers. As the Legatum piece points out, many borrowers have come to depend on access to microcredit as a core part of managing their financial lives. I think its safe to assume that managing their financial lives has become more complex since the flow of funds has dried up. Its certainly hard to believe that a billion dollar drop in liquidity in 6 months hasn’t had some spillover effects.

With the AP government’s decision to contest the new proposed legislation preventing the establishment of any sort of normalcy, new or otherwise, isn’t it time we paid more attention to the borrowers? How are they coping without microcredit? It would seem that global microfinance advocates should be highly driven to tell their stories. Let’s hear them.

Timothy Ogden is an executive partner at Sona Partners, the editor in chief of Philanthropy Action, and co-author of Toyota Under Fire. He also blogs at HBR and SSIR.