Tyler Cowen suggests that micro finance clients may play the role of "thugs" within their groups to assure repayment - micro finance's very own collaterisation.
I've heard many shocking stories about client behaviour and methods of repayment, but never this. Does anyone in the field have evidence to corroborate Professor Cowen's hypothesis?
4 comments:
Here’s my two cents from a study looking at how clients understand their loans done around Bangalore and also Allahabad, also corroborated by a CMF study which profiles Join Liability Group Clients (http://ifmr.ac.in/cmf/casestudies.html). The Centre Leader almost always takes responsibility for repayment. Many group members have told me that if they are short a certain week, the Centre Leader makes up the difference and they pay her later. Of course, the more unsavory stories are harder to come by.
From the same study which looks at how clients understand their loans, we asked women about collection practices and we found that a majority were comfortable with practices that we would consider to be unfair and threatening. For instance, 54% said that if someone in their group didn’t repay, they would not consider it unfair if the MFI took away any of her assets. So there does seem to be some level of tolerance of such kind of collection practices
Also, there’s a paper/book by Montgomery, R., Bhattacharya, D., Hulme, D., 1996, where they describe how in Bangladesh, BRAC group members took aggressive action against delinquent borrowers by taking possession of their livestock or other goods. One defaulting borrower even had her house brought down by another group.
As usual, my comment is longer than the post )-:
In certain cities Microfinancing is done by the loan sharks themselves. While they do have thugs to recover the loan it is definitely not used against the micro finance customers, as microfinance customers are good repayers.
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