Reuters quoted David Roodman in a blog post on the microcredit crisis in Andhra Pradesh.
From the article:
Some nonprofit experts say commercial social enterprises have significant limitations and pose conflicts of interest. But proponents like Mr. Khosla draw inspiration from the astounding global growth of microfinance — the business of giving small loans to poor entrepreneurs, of which SKS Microfinance is a notable practitioner…
Mr. Khosla said his experience with microfinance had helped shape his views on the best way to tackle poverty. He has invested in commercial microfinance lenders and has donated to nonprofit ones, and he said that moneymaking versions had grown much faster and reached many more needy borrowers.
But did SKS actually make those needy borrowers any richer, even as it was multiplying Khosla’s own investment 37-fold? I suspect that the single best financial decision that many of them ever made was to simply stop paying their SKS loans entirely.
SKS won’t ever be able to collect on the loans where its borrowers have gone on strike, and there’s no point in even trying; neither can it sell those loans to anybody else. Roodman says that “microcredit portfolios are like sand castles” — if you try to pick them up and move them to another institution, they disintegrate, since they’re based on a personal relationship between lender and borrower.
SKS’s loan portfolio in Andhra Pradesh has effectively evaporated, and no for-profit microlender is immune from the same thing happening to them. This is a global issue, which should be addressed by scaling back, going local, giving borrowers ownership of their lenders, and generally being much less ambitious when it comes to growth rates. Much better that full-service banks grow organically out of local communities than monoline microlenders parachute in, flush with venture-capital funds, make a huge splash, and then implode.