The India office of MicroSave has just release an excellent piece of research on how people in Andhra Pradesh perceive various sources of credit---private microfinance, self-help groups, moneylenders---and how they they are responding to the sudden disappearance of one of them. It is based in large part on discussions with 76 groups of borrowers.
Most interesting is the nuanced view that emerges of private microfinance institutions (MFIs):
Because they deliver timely loans ([respondents said in 80% of focus group discussions]); with the convenience of repaying principal along with the interest (46%). In 29% of the sessions, respondents said that they like the door step delivery model of MFIs. On the other hand, MFIs’ group responsibility (46%) came out to be one of the major dislikes for these loans. They also did not like the inflexibility in loan repayments (39%) as they are not given even a single day grace period when making repayments.
MFI staff members generally behave in a respectful manner and maintain cordial relations with the members, helping them in filling the documents and processing of the loans. However, when it comes to repayment, MFIs are perceived to be strict. They put pressure on the members for repayments, encourage the group members to collect the loan from the defaulting member and stop group members leaving the meeting place until the default amount is collected.
Respondents described the dangerous temptation of easy credit:
People started getting loans from all the companies. So they got tempted to take loans for buying TVs/mobiles. However, when it came to giving recoveries, they started taking more loans to pay off their previous loans.
But in general, harassment by MFI officers is something people only heard about in the mass media:
We read in the newspaper that some people had committed suicide because of harassment from MFI staff. We don’t know whether it actually happened but such incidents have never happened in our village.
The shut-off of MFI credit has naturally had ripple effects:
In 59% sessions, respondents said that they have taken loans from moneylenders in the absence of loans from MFIs. Moneylenders have increased lending in the past eight to ten months in areas with higher penetration of MFIs. The next most used source of credit for the respondents was the SHGs (37%) and “daily finance corporations”---another form of money lenders---(29%).
24% of respondents who had plans for business expansion have postponed them as access to credit had become difficult. Many (32%) respondents said that they had reduced the scale of their business because of lack of access to alternate sources of credit. In 12% of the sessions respondents said that they sold their assets such as house, vehicle, cattle, jewellery etc., to meet their productive (agriculture related expenses) as well as essential non-productive expenditure (school fees, marriage etc.) which have to be met.
In 66% of the sessions, the exorbitant interest rate charged by sources such as moneylenders and daily finance corporations featured as the most significant pain point [in accessing alternatives]. In as many as 41% of the sessions, respondents said that loans taken from SHGs and/or banks are often inadequate, and do not serve the purpose. Respondents said that for loans taken from SHGs and banks the processing time was very high (24%). It has taken a minimum of one month and maximum of six months for processing of a loan.
In sum, microcredit was one imperfect financial option among many. It seems that the rapid proliferation and growth of MFIs in Andhra Pradesh and the harsh counter-reaction from the government have undone an option that was useful in moderation and could have been improved. Eliminating it is hardly the ideal outcome, but that is what is happening now.