The Lessons of Andhra Pradesh

> Posted by Center Staff
What are microfinance advocates to think about the conflicting narratives that are emerging about the dozens of suicides in Andhra Pradesh?
On the one hand are assertions by the Indian state’s politicians and some community members that debts owed to microfinance institutions triggered the deaths.
On the other are some MFIs that claim, as reported by the Wall Street Journal, that microloans were among “the smallest of the many problems of the people that have killed themselves.”
The WSJ quotes one mother in the village of Sankarampet as saying that her son’s suicide was tied not to his wife’s $220 microloan, but rather to his own debt to loan sharks that was 10 times bigger.
How blame for the suicides is apportioned is having severe consequences in Andhra Pradesh, which, as the Financial Times reports, “has developed its own successful scheme to provide credit to women’s self-help groups.”
At this point, the anti-MFI narrative seems to have the upper hand. The Hindu Business Line reports that microfinance institutions are finding their field staff barred from some villages in Andhra Pradesh.
And two weeks ago, as charges flew about the suicides, the state passed an emergency ordinance that halted debt repayments. The consequences for local microfinance institutions have been dire.
So what are we to think about the unfolding of this story, with its heartbreaking human toll and serious implications for the industry as a whole?
It is too soon for definitive judgments. But several points are clear:
First, any connection between the suicides and industry practices demands scrutiny and action.
Second, authorities’ response of laying down heavy restrictions on microfinance institutions is probably not a good one. An overreaction seems to be in the works, one that will hurt MFIs and clients alike.
Third, better client protection practices are the right answer to almost every question raised by this crisis. Foot-dragging on implementing such practices may bear some blame here, along with a desire to grow portfolios at the expense of careful expansion.
Andhra Pradesh’s lesson is this: It is to everyone’s benefit that smart client protection practices take deeper root — not just there, but everywhere. It should not have taken a tragedy to cast a harsh and revealing light on that need. But now that we’re here, client protection is the only way forward.
Image Credit: Ssolbergj