Microcredit is imperiled in India by defaults

Résumé du document

The article is about the private micro-credit industry, collapsing in Andhra Pradesh, the Indian's largest state. Many borrowers have stopped repaying their loans. This movement was initiated by politicians because the industry would earn too much on the backs of the poor.

Indian banks are worried; they put $4 billion in this industry. While they survived to the financial crisis, they might suffer so much of this crisis.

The micro-credit was initially a non-profit organizations work, now many "social enterprises" that want to make money are on the micro-credit industry, extending the loans to very poor people at huge interest rates, without checking if they can repay or not. The authorities fears the Microcredit industry to become the Indian version of the USA's subprime. The common vector between the two markets is the "grow-at-any-cost strategy".

The crisis occurred in reaction against this phenomenon with disastrous effects: the authorities registered an increase of suicides of people who could not repay their loans. Even if a law was passed, stringing how they can lend and collect money, the local politicians encouraged people not to repay the loans: 10% of the borrowers repaid their loans in November.

Since the third of the borrowers live in this state were the 90% of them don't repay, this has many consequences all over India: it's much more difficult to lend, because the banks fears now the loans not to be repaid.

Extraits

[...] KARIM, Microfinance and Its Discontents: Women in Debt in Bangladesh, Broché - mai 2011 N. SRINIVASAN Microfinance India: State of the Sector Report 2010, Broché 2010 L. POLGREEN and V. BAJAJ Microcredit Is Imperiled In India By Defaults, The New York Times - 18 novembre 2010 J-M. [...]

[...] The polemic which caused the crisis in India was initiated by politicians, this is polemic too. Indeed, Amartya Sen's studies proved that in India (Bengale province in the 1940's), famine was provoked by the politic decisions, not because of a food lack. Those people who stopped paying the MFIs might be turned into an instrument of their politics. Actually, microfinance is a functioning system against poverty and for development. It enlarges the opportunities shield of the poor, increasing the standard of living. [...]

[...] For this, he was awarded, in 2006, the Nobel Peace Prize. This is now a real industry and le “microfinance institutions” (MFIs) are numerous. They are more than 3300, since the repayment rates are very high We have seen in class the innovation that made the microfinance works and oversteps the traditional credit market failures. For instance, the MFIs uppermost give loans to women. Indeed, there are good target, to liability. They don't waste the money you give them in alcohol or other, most of the time, they have children, they are like more responsible than men. [...]

[...] The microcredit was initially a non-profit organizations work, now many “social enterprises” that want to make money are on the microcredit industry, extending the loans to very poor people at huge interest rates, without checking if they can repay or not. The authorities fears the Microcredit industry to become the Indian version of the USA's subprime. The common vector between the two markets is the “grow-at-any-cost strategy”. The crisis occurred in reaction against this phenomenon with disastrous effects: the authorities registered an increase of suicides of people who could not repay their loans. [...]

[...] What's more, the industry would be big to fall”. Vikram Akula, chairman of SKS Microfinance said that the interest rates in Indian were among the lowest around the world and that they continue to be reduced. But against this crisis, they are looking for solutions like creating a fund to help and restructure the most struggling loans. The industry cannot collapse since many people are in debt, they would have to take other loans, and enter in the Dugramma Dappu's vicious circle. [...]