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David Roodman's Microfinance Open Book Blog


In November 2009, some guy nobody had heard of, Daniel Rozas, wrote an article asking whether there was a microcredit bubble in south India:

The spark that sets off a large-scale delinquency crisis can be anything and could come at any time – a rapid drop in economic growth, a populist political movement, a religious decree, or a collections effort gone bad. One can’t control the spark, but one can control how much fuel that spark can ignite.

Eleven months later the government of Andhra Pradesh ambushed the microcredit industry within its borders. Rozas became the Roubini of microfinance.

Now Daniel is worried again, this time about Chiapas, in Mexico, or maybe Mongolia or Cambodia:

So is Chiapas the next Andhra Pradesh? At the surface it seems that the comparison doesn’t hold. Chiapas is not the crucible of Mexico's microfinance market in the way that Andhra Pradesh was. A crisis in Chiapas would hurt the local lenders badly, but direct damage to the large lenders operating across the country would likely be limited.

However, Chiapas also differs from Andhra Pradesh in a way that is more concerning. India’s huge states (Andhra Pradesh alone is nearly the size of Mexico) are separated by language, caste, religion, as well as local media – differences that are especially strong among the poorer, less educated social segments that comprise microcredit customers. This regionalism played an important role in containing the Andhra Pradesh crisis within the state – a pattern also seen during an earlier repayment boycott in the Indian state of Karnataka.

But in a country like Mexico, with a strong national media, a common language, and fewer social barriers, it’s not hard to imagine a payment boycott in Chiapas easily spreading to other parts of the country, as was the case with the crisis in Nicaragua.

Of course there are no certainties in this business. But, as he did last time around, Daniel brings data to the table. So you can see what you think.

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