2014 - Book: Microfinance, Debt and Over- Indebtedness (original) (raw)
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Microfinance, debt and over-indebtedness_Introduction
Although microcredit programmes have long been considered efficient development tools, many forms of debt-induced distress have emerged in their wake. This has brought to light the problem of over-indebtedness, a topic which has been previously underexplored in the literature. This new book, from a group of leading scholars, explores the manifestations, scale, and economic and social implications of household over-indebtedness in areas conventionally considered as financially excluded. The book approaches debt not only as a financial transaction, but also as a form of social bond, and offers a socioeconomic analysis of over-indebtedness. The volume puts forward a broad
Is Microcredit a Debt Trap for the Poor? Sifting Reality from Myth
There appears to exist a deep-seated scepticism about microcredit in popular perception in Bangladesh. One manifestation of this scepticism is the oft-repeated allegation, based mainly on hearsay or anecdotes, that microcredit is leading hordes of borrowers into a " debt trap. " The present paper makes the first systematic attempt to empirically investigate the existence, nature and magnitude of debt trap among microcredit borrowers in Bangladesh. The investigation relies on a large-scale nationally representative rural household survey, covering the period 2007-2013. The paper begins by examining the prevalence of two interrelated practices – namely, " overlapping borrowing " and " borrowing to repay, " which are often taken as indicators of debt trap in popular discussion of the subject. The paper argues that although these practices could sometimes lead to a debt trap, neither of them necessarily does so, so that the magnitude of debt traps could not be deduced from the magnitude of these practices. After defining the criteria for identifying a debt trap, the paper finds that debt traps can be said to characterise at most 4.5 per cent of microcredit borrowers who engage in " borrowing to repay " and only about 1.4 per cent of all microcredit borrowers. Furthermore, even in these few cases, microcredit cannot generally be held responsible for their plight. Debt traps occur when extremely vulnerable households are faced with overwhelming shocks; and the role of microcredit here is to help people to cope better with such shocks rather than to cause them.
International Journal of Asian Business and Information Management
This paper studies microfinance and debt trap nexus. We have used an ethnographic approach, unstructured observation and interviews, to develop scenarios with the help of which we try to explain the phenomenon. Our research was carried out in DipKalaMoral, a small village located in Shikalbaha union under Karnaphuli Upazila of Chittagong in Bangladesh. We have found that excessive leverage through multiple borrowing lead to debt trap when households face unexpected income shocks due to economic cycle, unexpected weather (like heavy monsoon), wedding expenditure or paying dowry, and unexpected healthcare expenditure. In addition to that, we have found that informal money lenders tend to exploit households when households are heavily leveraged. Interestingly, we have identified a new phenomenon, ‘borrowing for others’ when households borrow from Micro Finance Institutions (MFIs) to lend money to others. A number of policy measures have been recommended which could be beneficial for po...
The Exclusionary Power of Microfinance
Sociology of Development, 2021
In recent years, international banks, investment agencies, and development institutions have created new markets for capital accumulation by rapidly expanding the commercial microfinance industry in the global South. In Cambodia, which has one of the largest microfinance industries in the world, the typical loan amount now exceeds the average annual household income and requires land-based collateral. Cambodian borrowers are increasingly over-indebted, compelling families to reduce their food consumption, take out new loans to service prior debts, migrate, and/or sell their land in distress. In this paper, we investigate this last effect of over-indebtedness, distress land sales. We argue that the exclusionary power of microfinance debt-constituted by collateralized legal contracts, discourses of moral responsibility, and public shame-is driving land dispossession among the country's most vulnerable people. To make our argument, we draw on ethnographic fieldwork, supplemented by quantitative data from the Cambodia SocioEconomic Survey, MIX Market, and two industry-sponsored large-scale quantitative surveys of over-indebtedness. We trace the rise of the commercial microfinance industry, show how it has contributed to over-indebtedness, and consider how household debts can lead to distress land sales. These land sales have largely gone unacknowledged in the industry because they take place through informal channels rather than the court system. We conclude that microfinance-debtinduced land dispossession in Cambodia is a product of an overly commercialized international microfinance industry that now values profits over people.
Good debts, bad debts: Microcredit and managing debt in rural south India
Journal of Agrarian Change, 2021
This paper engages with debates around microcredit, once a development success story, but now much critiqued. Arguing that microcredit can only be understood within the wider context of debt, we draw on ethnographic material from two villages in Tamil Nadu, to examine how microcredit through self-help groups sits within a broader context of indebtedness among the rural labouring classes. We describe patterns and sources of borrowing among the poor, the ways in which debts are managed, negotiated and settled within households and the ways in which the management of debt is mediated by gender, caste, class and aspiration. The paper calls for a more nuanced understanding of debt: some debts are seen as 'good' and others as 'bad'. We explore the ways in which microcredit, channelled through self-help groups, is-against much contemporary criticism-perceived by women borrowers in our study villages as a source of 'good debt' and praised as an enabling factor in their everyday household management as well as in aspirations for mobility and development. We also argue that microcredit can have positive impacts by enabling social investments that enhance status and reduce dependency.
Journal of International Development, 2017
It would be hard to deny that microcredit is in trouble. Randomised control trials have undermined claims about its 'miraculous' effects (Banerjee, Duflo, Glennerster, and Kinnan, 2015), and systematic reviews have concluded that enthusiasm for it was built on 'foundations of sand' (Duvendack et al., 2011). The Microcredit Summit Campaign, which has been a key promotional body since 1997, disbanded in April 2016. Although he remains adamant that microcredit works, the Godfather of microlending, Prof. Muhammad Yunus, has also lately focused his efforts elsewhere, such as on promoting 'social business'. The microfinance agenda overall is gradually being folded into-or some might say rebranded 1 as-'financial inclusion'. Against this backdrop of its systemic crisis, an edited book by Isabelle Guérin, Marc Labie and Jean-Michel Servet shines the spotlight on numerous smaller crises and collapses that have plagued microcredit in many countries over the past two decades, some of which went unnoticed beyond narrow expert circles. Only the 2010 collapse in the Indian state of Andhra Pradesh-reports of which hinged on systematic abuse of borrowers and a spate of suicides-made wider headlines. The subsequent loss of nearly the entire Andhra loan portfolio (over one billion dollars) made the industry painfully aware of its vulnerabilities; politicians seeking to harm microfinance were blamed for the collapse. With contributions from economics, anthropology, management, sociology and practitioners, the 'The Crises of Microcredit' is heterodox and presumes little specialist knowledge. It collects nine essays, mostly with an empirical focus, that move beyond and overturn simplistic narratives about the microfinance industry's victimhood, in particular by studying its complex and sometimes troubling engagement with the borrowers.
Microfinance: Indebting the Poorest in the World
Finance & Management Engineering Journal of Africa | Published by: Dama Academic Scholarly & Scientific Research Society, 2020
This theoretical concept has been sold to the major financial organizations of the world that have pumped in billions to expand the reach of microfinance. Microfinance is now a major part of the poor economies right from Bolivia to Bosnia to Bangladesh. However, the reality of microfinance seems to be the exact opposite. Most of the studies that were full of praises for the concept of microfinance were commissioned by the companies that were pursuing the business of microfinance themselves. Needless to say that these studies had vested interests and wanted to make microfinance look better than it is. Therefore, when unbiased studies were conducted, a lot of issues with microfinance were discovered. It seemed like microfinance was, in fact, indebting the poor and making the companies rich and the whole win-win model was a hoax.
World Development, 2020
The COVID-19 pandemic has hit at a time when microfinance is at its historical peak, with an estimated 139 million microfinance customers globally. Cambodia's microfinance sector is one of the fastest growing, and like others in the Global South has moved from offering entrepreneurial capital to everyday liquidity, and even disaster relief. In this Viewpoint, however, we argue that the promotion of microfinance as market-based relief and recovery from the pandemic should be a source of concern, not comfort. We firstly suggest that as a result of the health and economic impacts associated with COVID-19, credittaking is likely to escalate further in terms of the number of borrowers and loan amounts. Second, we contend that a growing reliance on MFIs will leave households undernourished, and further vulnerable to its disciplining and extractive impulses. Third, we argue that the interplay between overindebtedness, pre-existing malnutrition challenges, and the global public health crisis of COVID-19 represents a major challenge to gender equality and sustainable development. Coordination between the Cambodian government, microfinance lenders, international investors, and development partners is vital to offer debt relief. Furthermore, to reverse the reliance of so many households on the microfinance industry for survival, inclusive socioeconomic policies and public welfare services must be prioritised.