Over-indebtedness is as old as lending itself. A growing credit market will always bring about cases of client over-indebtedness. To put consumer protection measures in place is an essential part of good practice.
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.
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.
By market standards, the SKS IPO is a great success. Institutional investors have over-subscribed their allocations by 13 times, and the company’s valuation of USD 1.5 billion came in at the top end of the offer band price.
As the Indian microfinance sector responds to the Andhra Pradesh crisis, an opportunity has been created in India, as well as in the global sector, to reevaluate their “people practices” and make them a core part of a system that has provided a safety net for millions.
While the origins of mass defaults may be rooted in cultural and political considerations, in this post we focus solely on customer behaviour and the lending practices of MFIs that operate in these towns.
Events of 2009 in the Kolar district in Karnataka, a state in southern India, offer a valuable case study for the microfinance sector because they show the complex intersection between cultural and social factors and household financial decisions.