The issue of individual over-indebtedness has been around for a long time in microfinance, but the depth and extent of over-indebtedness that has recently emerged in Andhra Pradesh is quite unprecedented.
The global debate on over-indebtedness tends to focus on the role of high rates of growth as its cause. The argument is that growth is sustained by the less responsible MFIs who target easy to reach clients – the low hanging fruit – encouraging them to borrow and inadvertently getting them into trouble as a result.
The large MFIs seem to be revising down their growth targets, there are ongoing experiments with new products and there is some hope that a microcredit bureau, at least on a limited scale, will see the light of day within a year or so.
We need to look more carefully at the interactions between microfinance institutions and their clients, examining how MFI practices play out in lives of clients on an everyday basis. Stuart posed two specific hypotheses: if a lender needs clients to borrow continually, it incentivizes overselling and overindebtedness, and that insistence on immediate, in-full repayment drives some clients to begin bicycling loans.