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CGD Policy Blogs

 

Why I'm Afraid to Fund Group Microcredit

Because of circumstances beyond their control (sickness, flood, drought, theft and so on), lack of skills and knowledge or taking bad decisions, a proportion of poor borrowers encounter great difficulties in repaying loans. While MFIs [microfinance institutions] suggest that such problems are overcome through ‘social support’ in some painless way this is often not the case---talk to the dropouts of MFIs!

The Dangers of Overlending in India

Siddhartha Chowdri, ACCION International's Country Manager for India, has posted a warning on the blog of the Center for Financial Inclusion about the dangers of overheated competition and growth in microcredit in India. Some people, he says, are borrowing too much, from too many microfinance institutions (MFIs). The resulting situation, as in Andhra Pradesh a few years ago, is politically combustible.

Empuzzlement

One perspective through which I am judging microfinance is Amartya Sen's notion of development as freedom. What do we know about when microfinance gives people more agency in their lives and when it, contrarily, reduces their control over their circumstances (the main worry being debt traps)? With regard to microfinance, "empowerment" usually refers specifically to helping women break the bonds of sexism within their families and societies.

Distrusting the Debtor

A central question in judging microcredit: When can we as creditors trust the judgment of the poor as borrowers? These days we can all reel off examples of unwise borrowing in rich countries (though I daresay unwise lending is more to blame for the current crisis). Do the world's poorest people, with less margin for financial folly, borrow more prudently? Two things I've read recently tend toward opposite answers to this question.

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