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To help answer this question, I visited Hyderabad, India, in June. The Poverty Action Lab at the Massachusetts Institute of Technology, run by Abhijit Banerjee and Esther Duflo, economics professors at M.I.T., and Sendhil Mullainathan, an economics professor at Harvard, has begun a study of microfinance in Hyderabad. The lab is monitoring thousands of borrowers from Spandana, one of the largest microlenders in India. At the end of a two-year trial period, the study will compare microfinance recipients to peers without comparable opportunities.
Near Hyderabad, in the state of Andhra Pradesh, political opposition to microfinance has begun. State officials have fed negative stories to the media. They charge that microfinance debts have driven some people to ruin or perhaps suicide. They call Spandana’s programs “coercive” and “barbaric.” They question whether the “community pressure” behind repayment is sometimes too severe.
The motives behind this campaign are twofold. The state is not a neutral umpire but rather has its own “self-help group” banking model, which lends at the micro level. Spandana and some of the other private microfinance groups are unwelcome competition. More generally, opposition to money lending has been frequent in the history of both India and the West.
The government has abruptly shut down the branch offices of some microlenders, including Spandana, without respect for due process. There is talk of legally capping microfinance interest rates at levels...that would put many microlenders out of business. Such regulations would drive the poor back to the far more expensive private moneylenders and also to the state government.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.
Recently CGD hosted the Second Annual Birdsall House Conference on Women, which focused on beyond-aid approaches for women’s economic empowerment, with particular emphasis on private sector engagement. CGD experts have written about how international organizations and national agencies should examine and correct gender biases in the design and delivery of their strategies for financial inclusion. But while public sector interventions are crucial for promoting women’s economic empowerment, the panelists pointed out that the private sector is in many ways better equipped to provide opportunities for women to grow their businesses, investments, and incomes. Here’s our takeaway.
On Monday, Grant Shapps, the UK's Minister of State at the Department for International Development, kicked off DFID’s Energy Africa campaign at an event hosted by the Shell Foundation designed to help his team figure out how the UK government can invest its political clout and an initial £30 million ($46 million) to tackle rural energy poverty in Africa. Given solar’s limitations and these risks, how can we make sure that Energy Africa fulfils Minister Shapps’s ambitious brief?