This excellent new study by Rajalaxmi Kamath, Arnab Mukherji and Smita Ramanathan of IIMB offers some strong evidence that the answer is "yes." Over the course of three months, the authors painstakingly recorded each and every cash inflow and outflow for a small sample of households in the Ramanagaram slum of Bangalore. From the report:One of the strong results that came out from the analysis of the diaries was that our sample had many households borrowing systematically from multiple MFIs and SHGs. In the sample all, except one of the households were indebted to multiple MFIs / SHGs. 19 of these 20 households was indebted to more than 2 MFIs / SHGs and 10 of these were indebted to more than 4 MFIs / SHGs. 14 of these households also had loan repayments to finance companies, chit-funds and money-lenders. At the extreme end, there were two households that were indebted to a total of 7 MFIs / SHGs, apart from taking loans from a private finance company. (emphasis mine)
The authors would be the first to admit that their sample can in no way be construed as representative of all microfinance borrowers or even of microfinance borrowers from Bangalore's slums, but still, these are striking results. How in the world do these women the time to attend all of these meetings is what I want to know?
A common argument against the formation of a credit bureau for the microfinance sector is that loan officers are already which of their clients have loans from other sources. Even if the loan officers to these clients were aware that they borrowed from more than one source, I find it highly unlikely that they are fully aware of the full scale of their borrowing though.
Tuesday 6 May 2008
Does the Indian Microfinance Sector Need a Credit Bureau?
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5 comments:
There is also a case for re-examining loan limits at the MFI level to examine why each MFI is lending such a small fraction of the loan amount required.
I feel that Credit Bureaus may be required not only for loan officers to keep better track of their clients in the same location but also for a high performing client in a different location signalling that they are indeed credit worthy.
My interactions with a bunch of MFIs seem to suggest that MFIs did not want high performing clients come into the limelight. The fear of losing such clients to a commercial bank is stark - and one that I think goes against the grain of the development agenda of microfinance (is any, that is). MFIs, instead of wanting to help clients graduate on to the formal financial sector seem to want to keep them under wraps, limit their choices of service providers, thus capping off the total credit available to these clients.
Dear Mr. Johnson,
I'm a business student and at the moment I'm writing my Bachelor Thesis about Microfinance and Credit Bureaus, therefore I'd like to know where I could find the study by Rajalaxmi Kamath.
Thanks in advance,
Judith Mayer
Thanks for posting this. I would like to contact people who did the study. Can you please help?
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