David Roodman had a letter to the editor included in the opinion section of the Financial Times on microcredit in India.
From the Letter:
Sir, In the face of the welter of criticism of microcredit in India, this defence of microcredit is timely (“Microcredit is not the enemy”, Comment, FT.com, December 13). But it misses a larger point. To understand and learn from what has gone wrong, we must view Indian microcredit not only as an intervention, but also as an industry. Imagine a piece entitled “Mortgages are not the enemy” that enumerated the good things done by mortgages in the UK. That would ring hollow as an analysis of the problems of the mortgage business and the needed fixes. At its heart, the story of Indian microcredit is familiar: credit grew too fast. For a while, easy money masked and exacerbated the repayment difficulties of some borrowers.
Meanwhile, microcredit may well have become the most inflexible kind of credit available to India’s poor, making it most apt – in loan officers’ insistence on prompt, weekly repayment – to force cornered borrowers into acts of desperation such as suicide.
The authors are right to take individual suicide reports with salt, for we have little systematic evidence of what is happening in the slums and villages.
But by the same token, they cannot be so sure that microcreditors committed no more than the “occasional overstep”.
Let us attack the problem of fast growth by slowing the spigots that inflated the bubble. Indian banks should no longer be able to count loans to microcreditors in satisfying the government’s “priority sector” lending quotas.
Internationally, public and private investors in microcredit – most of which seek social betterment as well as profit – ought to launch a sort of credit bureau for microcreditors.
This would track the borrowings, equity placements and growth rates of microcreditors and issue guidance about when fresh funds seem safe, and when it would be better for the poor and the industry not to invest.