It has been a long winter for microfinance in South Asia this year.
First, I would like to share an update on the microcredit crisis in India. The Malegam committee published its recommendations for microfinance in India but no new formal regulations have been published so far though it appears several clauses of the report are likely to be implemented. As I had previously written, repayments in Andhra Pradesh state are still very low. Meanwhile, loans to the tune of nearly USD 2.8 Billion (Rs. 13,000 Crores) to some of the largest MFIs in the state of Andhra Pradesh are likely to be restructured with the loan term being extended from the usual 2-3 years to a maximum of 10 years.
I was in India over the last one month and the impasse has not done much good. The confidence of bankers on lending to MFIs for microcredit has been eroded. India is one of the countries that successfully managed to encourage local banks to lend to MFIs. The uncertainty and impasse has in my opinion turned the clock back by nearly a decade.
Prof. Malcolm Harper writes that this situation seems to have produced several losers, but the biggest and the most silent losers are going to be the poor women and their families all over India who will see the flow of credit slowing down. Many aspirations will have to be postponed or remain unfulfilled.
As a saving grace, at UnitedProsperity.org we are glad that default epidemic is restricted to only one state in India. Our borrowers are in a different region and are continuing to pay back their loans, although many of them have been disturbed by the prospect of not getting the subsequent loan on time.
In neighboring Bangladesh, Nobel Prize winner Prof. Muhammad Yunus, an international icon has been subject to the most unceremonious treatment by his government. I sincerely hope that international pressure will encourage the Bangladesh government to treat with respect and dignity the man who has done so much to help women in Bangladesh and around the world come out of poverty with dignity.
Making sense of some of these events has indeed been overwhelming. We have been trying to get banks to start lending based on our guarantee. However, bank lending in India to MFIs is frozen. We also explored several other possibilities in India, but at this point due to the environmental uncertainty banks are in an ultra cautious mode.
We are also contacting MFIs in several other countries to explore if they need guarantees so that they can borrow from local banks. So far we have noticed that in most of the countries other than India, MFIs are dependent on loans from international donor organizations. We have had encouraging discussions with a couple of MFIs and we hope that some of these leads will fructify. We will continue to be posting updates on our blog and newsletter on the progress we are making.
We sincerely hope that all of us can once again cherish and celebrate the opportunity to make a difference to people’s lives. Thanks for your patience and we look forward to an early spring.