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… that lower interest rates were possible all along!

India’s embattled microfinance industry has agreed to cap interest rates on its loans in southern Andhra Pradesh state at 24 per cent, as it seeks to counter an intense political backlash against the sector. …

Previously, the industry insisted its high interest rates were needed to cover the cost of outreach to so many small borrowers. However, it has decided to cap the rates in a bid to reduce antagonism from Indian policymakers, who are increasingly uncomfortable with the large profits and personal fortunes being amassed in an industry ostensibly dedicated to alleviating poverty. (ft.com)

And in The Hindu:

“We’ve made several concessions because we’re under duress and not because we want to. It is against our model, but we want the sector to survive. Mr Gopalan completely understands our situation, but he has not let us off the hook,” said Mr Vijay Mahajan, President, MFIN.

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As India celebrates Diwali this week, the debate about how to deal with microfinance has calmed a bit. But since I wrote up my analysis of the root causes Andhra Pradesh showdown (part 1, part 2), the news has taken few further twists. Here’s an update:

  • Vijay Mahajan, Chairman of BASIX and speaker for the MFIN industry organisation, stated on TV: “Alot of the reasons for invoking the ordinance were the creation of the microfinance sector itself. There has been a certain degree of wrongdoing by our sector. And as the president [of MFIN] I am the first one to accept it, I want to do it on record.”
  • The interest rate disclosure requirement under the new microfinance ordinance in AP has uncovered interest rates far higher than previously reported – up to 60.5 percent. I wish I was surprised; but MFIs usually neglect to factor compulsory savings, fees, etc., into their publicly quoted rates.
  • The AP government has published the complete list of complaints of malpractice and suicide launched against the MFIs – see it here.
  • A massive borrower database in AP will go on-line in January, in an effort to clear up the mess.

Meanwhile, India’s vibrant media and civil society have been grappling with the issue, as are some American media. The rest of this post is a digest of the most provocative, insightful and intelligent commentary I’ve seen on the subject.

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The Book

Governance across borders: transnational fields and transversal themes. Leonhard Dobusch, Philip Mader and Sigrid Quack (eds.), 2013, epubli publishers.
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