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In the series “algorithm regulation”, we discuss the implications of the growing importance of technological algorithms as a means of regulation in the digital realm.
A common complaint of Google’s competitors in fields such as Internet maps is that Google’s search algorithm favors its own services over those of competitors in its search results. For instance, the FairSearch coalition led by Microsoft, Oracle and others calls for more transparency in displaying search results and harshly criticizes Google:
Based on growing evidence that Google is abusing its search monopoly to thwart competition, we believe policymakers must act now to protect competition, transparency and innovation in online search.
Given Google’s market dominance in Europe with over 90 percent in core markets such as Germany, such allegedly discriminatory practices led to an antitrust investigation by the European Commission (EC). However, providing reproducable evidence for such discriminatory search results is difficult. Google is not only constantly changing its search algorithm (see “Algorithm Regulation #4: Algorithm as a Practice“) but also increasingly personalizing search results; both these characteristics of contemporary search algorithms make it difficult to compare search results over time.
The power of financial markets and financial actors over economies and societies is as hard to deny as it is to conclusively prove. From subprime mortgages to Greek debts to microloans, different people and different sectors all feel it in their own ways. “Financialisation” (Epstein, Krippner), “finance-led growth regime” (Boyer), “financial market capitalism” (Windolf) represent only some of the attempts to come to grips with this sea change; but none have provided decisive answers as to the “why” and “how”.
A new book proposes seeing finance (in the tradition of the French “Régulation School”) as a type of regulator – a subtle, insidious one. “Finance: The Discreet Regulator: How Financial Activities Shape and Transform the World” collects perspectives on how “financial markets are the seat of regulatory processes initiated and developed by core-capitalist financial institutions such as banks and audit firms”. Read the rest of this entry »
… 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.
Maybe it’s too early to seek real explanations for the microfinance tragedy in AP. The dust hasn’t settled yet, but I’m struggling to come to grips with the big “why?”. (For a summary of events until Tuesday, see here.) My usual blog sources of all colours for all things development are silent, so far. But the Indian media are buzzing with coverage and an occasional piece of analysis. From what I can tell from these reports, the crisis was caused by a failure to regulate and a set of ultra-perverse incentives for microfinanciers and their employees.
What happened? In the past 6 weeks or so, some 30 to 60 microcredit borrowers in Andhra Pradesh (according to different sources) committed suicide over their loans. Individual stories had surfaced increasingly throughout early and mid-October about borrowers suffering under heavy debt burdens and massive pressure from agents; with measures apparently even including child abduction as punishment for loan default and agents urging borrowers to take their lives to reap credit life insurance. Protests ensued, and last week, the AP government issued an ordinance imposing rules of conduct and compulsory registration on MFIs (microfinance institutions). A consortium of MFIs (MFIN) claimed this had halted their business completely, and this week the MFIs submitted a petition at the AP High Court asking to quash the government’s ordinance.
This Indian news video concisely tells the horrific story.
The High Court today officially permitted MFIs to continue their business activities, while upholding the terms of the ordinance that MFIs may not engage in coercive practices and must proceed with registration. Meanwhile, employees of SKS Microfinance and Spandana have been arrested for harassing borrowers. SKS shares have dropped by over one fifth, indicating that investors are worried about profitability (rightly so). An Indian apex organisation has proposed for all its members to cut interest rates – more about that below. Read the rest of this entry »
Just right now, a severe microfinance crisis appears to be brewing in Southern India. A large number of suicides has led to a legal clampdown and a corporate backlash. With a complaint launched by microfinance institutions (MFIs) at the Andhra Pradesh High Court in Hyderabad against the Andhra government, the recent conflict over MFI practices and borrowers’ debt levels – debt which may be responsible for the deaths of over thirty people – has come to a head. How this case develops is bound to shed light onto what actually matters in microfinance in India today. Bluntly: is it power, profits or people?
Flashback: In August and September, nineteen microfinance borrowers in Andhra Pradesh (A.P.) took their lives because of overindebtedness blamed on microfinance – some reports say more than 30 (or even 57; see updates below). Then, in early October, the debt-driven suicide of a fruit-seller named Prabhakar in Kurnool, southern A.P., triggered public outcry and attacks on several MFI offices.
On October 14th, the A.P. state government “brought an ordinance making it compulsory for MFIs to register themselves, declare the effective rate of interest they charge, ensure that no security is sought for loans and no coercion is used for recovery. Non-compliance will be punished with a three-year prison term and a fine of Rs 1 lakh.” In response, yesterday a consortium of MFIs operating in A.P., MFIN, filed a petition at the Andhra Pradesh High Court seeking an order to squash the ordinance issued by the government (NDTV, AP). Meanwhile, another overindebted microborrower, K. Narayana, who was harassed by the agents of four MFIs, took his life by drinking poison.
Video: “The microfinance institutions hit back,” questioning A.P. government’s power of jurisdiction.