World Agenda

Last updated: 26 january, 2011 - 16:06 GMT

Investigating India’s microcredit crisis

Madeleine Morris interviews those affected by micro-lending in India

Madeleine Morris interviews those affected by micro-lending in India

Assignment reporter Madeleine Morris recounts her visit to south-east India to make sense of the personal stories recounted by those who have benefited from and suffered at the hands of micro-lending companies.

I was surprised by how emotional people in India can get about what is essentially a financial product.

Investigating microcredit – which aims to lift women out of poverty by giving them small loans to start businesses – proved to be the most difficult story I have dealt with in years, simply because of the diametrically opposed views of what has gone on in the industry.

We went to the state of Andhra Pradesh, in south-east India, where there’s been a crackdown by the state government on micro-lenders.

It was prompted by a series of borrower suicides which have been blamed on over-lending.

Overwhelming debt

Another surprising element of this story is how many people would only speak to us off the record

Assignment reporter Madeleine Morris

It was only a matter of hours after getting off the plane that we were confronted with our first taste of how divisive this industry is.

We were taken to meet the family of one girl, Lalitha, who had committed suicide, allegedly because of pressure on her from microfinance companies.

Her parents were $1,000 in debt, more than 60 times their weekly income.

Our introduction to Lalitha’s parents came from members of the Society for Elimination of Rural Poverty (SERP), a quasi-governmental agency which strongly backs the government’s own small loans programme, known as Self-Help Groups (SHGs). These SHGs are in direct competition with microfinance organisations.

Sensationalist claims

Reporter Madeleine Morris recording in a busy street

Reporter Madeleine Morris recording in a busy street

It was made very clear by our SERP chaperone that she thought microcredit companies were a terrible thing.

Conversely, when I asked Alok Prasad – the head of the micro-lenders association Microfinance Institutions Network (MFIN) – if he thought the government was jealous of his members’ success, his answer was: “Very much so.”

The microcredit industry feels it has been unfairly blamed for the suicides.

A number of insiders I spoke to pointed out that sadly, in India, rural suicide is a relatively common response from those facing difficult times.

The local police found that although debt was to blame in Lalitha’s suicide, no single microcredit company was to blame.

We were also unable to substantiate some of the more sensationalist claims made by other media about her death.

Success stories

Another surprising element of this story is how many people would only speak to us off the record.

A number of industry insiders who were prepared to reveal bad practises agreed to speak to us when we were in London, but when we got to India they changed their minds.

“My husband’s family won’t let me,” was the explanation of one would-be whistleblower. Another said he would only do it if we disguised his voice.

Because so much of the media focus on Andhra Pradesh’s microcredit industry had been negative, it was instructive to be able to meet a woman, also called Lalitha, who had successfully used a microloan to improve her business and the prospects for her family.

“With the investment capital I have been able to make the shop much larger and as a result it has become profitable,” she told me.

New buzzwords

Madeleine Morris conducting an interview

Madeleine Morris conducting an interview

Our assignment aimed to examine the current controversy in Andhra Pradesh and also to look at the wider question of how many genuine success stories like Lalitha have been created through small loans.

It was interesting to see how the language about microcredit has changed.

Even six years ago, during the United Nations’ International Year of Microcredit, the talk was very much about ‘ending poverty’ through small loans.

Now, the buzzwords have changed to ‘promoting financial inclusion’ and there is a growing awareness that other financial products, like savings and insurance, are equally as important for helping the poor.

When the dust settles on the Andhra Pradesh microloan crisis, there will undoubtedly be a reordering and much-needed better regulation of the industry.

There may also be a new and more realistic set of expectations about what small loans can actually achieve.

You can listen to Madeleine's Assignment by clicking click here

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