Radical Departure in Andhra Pradesh Debate: Data

...more precisely: systematically collected data about clients.Some people say microfinance needs to grow quickly in India in order to bring its benefits to the poor at the speed they deserve. Others say it should be shut down quickly in order to stop the harm it is doing to the poor---and that at the speed they deserve. These assertions are not generally backed by much evidence. Ironically, one of the best studies ever done of the impacts of microcredit took place right in the capital of Andhra Pradesh, Hyderabad. Amidst the sturm und drang, it offers the econometric equivalent of a shoulder shrug.Justin Oliver, who directs the Indian institution that helped execute that study, the Centre for Microfinance Research, has just written the first post I've seen on the Andhra Pradesh crisis with serious data on clients. It is based on surveys done six months ago in the state.E.g., on the perplexing question of whether borrowing from multiple sources indicates the equivalent of unsustainable credit card juggling or the clever patching-together of financial tools that are individually inadequate:

“Multiple borrowing” is rampant. Eighty-four percent of households had at least two loans outstanding, and one household we spoke with had 19 loans. But the vast majority of these loans are informal. Of course, even if we ignore informal sources, multiple borrowing is still pretty common. But it’s not limited to people who lend from MFIs. Multiple borrowing from banks and SHGs is pretty common too.

• 17% of households with an SHG [self-help group] loan outstanding had multiple SHG loans outstanding, and 58% had at least one more loan from a formal source.
• 26% of households with a bank loan outstanding had multiple bank loans outstanding, and 74% had at least one more loan from a formal source.
• 28% of households with an MFI loan outstanding had multiple MFI loans outstanding, and 82% had at least one more loan from a formal source.

We also find evidence that people who take multiple loans frequently take them out at the same time and for the same purpose, rather than staggering them as you would if you were using one to pay off the other. This bundling of several loans suggests that many people just find it difficult to get all of the credit they need from one place.

This is of course not an impact study. It doesn't tell us whether microcredit is increasing suicides nor whether MFIs are rampantly harassing clients for repayment. But I think it does cast the the government's move to shut down MFIs in order to protect SHGs in a dubious light.I trust this kind of information more than impressionistic reports from people who have spent at most a day in Andhra Pradesh talking to actual poor people.Which is why I'm going to spend a day next week in Andhra Pradesh talking to actual poor people. Look forward to my impressionistic reports.I'm speaking about my book on Monday at the Microfinance India Summit. I have extended the trip in order to visit AP Wednesday--Saturday. I welcome suggestions of what to do with my time.