THOUGHT FOR THE DAY

Art

“Failure is art of learning, and we have to enjoy that art.” -Abbas Pachmarhiwala

TOPIC OF THE DAY

The Microfinance Contagion Scenario

So far, the Andhra Pradesh (AP) microfinance crisis has largely been viewed as a local issue, with relatively little impact beyond AP or India's borders. Other microfinance crises, in Bolivia, Nicaragua, Nigeria, and Bosnia, have not spread beyond the borders of a particular country. But as information trickles out about how bad the repayment situation in AP is, a plausible global contagion scenario is emerging. That's not to say it's likely, but it is certainly possible and a threat that social investors of all stripes should be thinking about how to defuse.

Although the situation in AP remains fluid, one thing hasn't changed over the last few months: repayment rates have fallen to about 10%. While these low repayment rates currently are only being seen in AP, they are causing serious problems for the major MFIs in India. The reason is that AP accounts for a large chunk of the total portfolio of the major MFIs in India — the Economic Times of India estimates that AP accounts for 40% of all microfinance loans in the country.


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