The India microfinance industry is in the midst of a storm centering in the state of Andhra Pradesh – the hub of the sector. Clearly there were mis-steps by the industry but the knee-jerk ordinance by the state may set back the BoP years! Here is why:
The microfinance industry in India has been rocked by the recent Andhra Pradesh ordinance. A recent spate of suicides has been blamed on irresponsible MFI practices and has given the state an excuse to target the entire sector. I don’t think anyone would deny that regulation is needed in this nascent sector as pure commercial MFIs swarm SHG groups and group lending has been perverted into tremendous societal pressure on would-be defaulters. However, the state has halted MFI operations altogether. And, though the ordinance has been overturned by the courts, there are those who have incited public action against MFI staff making it physically dangerous for staff to go out to villages to conduct business. The MFIs are now in week four of not being able to conduct regular business. In an industry that is high-touch and heavily dependent on regular cashflows, such a time lag is disastrous. Furthermore, the implications for future repayment are still in question (if your loan officer didn’t come by for four weeks and you heard the government was cracking down, how likely are you to repay your loan?) There are a couple of implications for the rest of us:
Have you been following the latest news of the microfinance industry here in India? On his blog on Social Edge, Parag from Waste Ventures writes about why all BoP entrepreneurs should follow this case and take learnings from what is going on.