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Thanks for the post shrikant. Most people don't seem to realize this, and it's in part because of all the attention MFI's are getting rightnow. There's very lit

by edge17 16y ago

Thanks for the post shrikant. Most people don't seem to realize this, and it's in part because of all the attention MFI's are getting rightnow. There's very little data and numbers available, but are some - http://microfinance.cgap.org/2010/11/11/who’s-the-culprit-accessing-finance-in-andhra-pradesh/ http://microfinance.cgap.org/2010/11/11/who’s-the-culprit-ac... This table, taken from the above blog post, was of particular interest. It describes what percentage of the loans are used for what. In looking at these numbers it's important to take into account the types of people to whom loans are given to - that is to say, someone that can get a loan from an MFI may not be able to get a loan from a Bank etc etc. Also note that certain line items like 'Buy Livestock' may be much higher for something like a Bank because the bank's loan terms may incentivize certain types of loan utilizations. Any time you see data like this, keep in mind it's far from clean and quite imperfect (data collection methods are door to door and done on foot), so take it with a grain of salt. Also, the columns may not add up to 100 because some double c counting goes on (i.e. if a respondent used the loan for more than one thing it will be counted more than once under separate categories) But if this data is an indication of what actually goes on in microfinance, it's not quite being capitalized for it's intended purposes. This seems explainable in that at the end of the day a line of credit is a line of credit no matter what verbage you attach to it. We call it a microfinance loan, but the people that receive these loans probably don't know what microfinance loans are; that's to say they probably just call them loans. Usage of Loan Money by Type of Lender Bank MFI SHG Informal Start new business 2.0% 2.5% 1.9% 1.1% Buy agricultural inputs 57.5% 13.2% 19.3% 19.9% Purchase stock 3.0% 9.9% 4.2% 2.7% Buy livestock 2.7% 6.0% 5.6% 1.7% Purchase land 0.8% 0.9% 0.7% 0.6% Home improvement 9.7% 22.1% 13.0% 14.2% Repay old debt 14.6% 25.4% 20.4% 7.0% Health 11.4% 10.9% 18.6% 25.3% Education 4.1% 4.4% 5.7% 5.3% Marriage 4.3% 4.8% 2.2% 12.2% Funeral 0.1% 0.2% 0.5% 1.7% Other festival 0.6% 3.5% 3.6% 4.8% Unemployment 0.0% 0.0% 0.1% 0.8% Purchase jewellery 0.5% 0.6% 1.6% 0.4% Other consumption 26.5% 31.6% 49.9% 24.9%

shrikant 16y ago
[...] the people that receive these loans probably don't know what microfinance loans are; that's to say they probably just call them loans. And this is the crux of the issue. The table only denotes what the borrower took the loan for, and not for what actual use the money was put to. Basically it boils down to this: once the money is in their hands, unless the borrowers have had some information dissemination of a substantial sort, it can be used for any purpose. It is typically the lending party's duty to take solid steps towards educating the borrower as to the actual purpose of the loans, and MFIs in India (IMHO) were initially doing a stellar job of this (ok, well, SKS at least - I sat in on some of their 'group training seminars'). I'm not close to the domain now for about a year though, so I couldn't comment for sure any more. As an aside: (I don't think they'll take action against me for saying good things about them, so I'll go right ahead) SKS' impairment levels were so ridiculously low that I would end up manually re-calculating the figures to ensure Mondrian wasn't lying to me or our software wasn't badly broken. As another aside: there is also an emerging trend of 'micro-insurance' products (livestock insurance, crop insurance, 'hut' insurance, etc.) being offered by MFIs as well as large insurance companies which I did a field study on, which reached conclusions similar to what I learned from the SKS project - the illiterate and poor initially cannot even conceive that someone would want to help them out without shafting them, but with substantial education to a few key influential and smart members of the community, the message can be gotten across.
- edge17 16y ago
  The table only denotes what the borrower took the loan for, and not for what actual use the money was put to. Basically it boils down to this: once the money is in their hands, unless the borrowers have had some information dissemination of a substantial sort, it can be used for any purpose. I don't think (and I could be totally wrong, I don't know the process of actually getting one of these loans) that the left column denotes what the borrower took the loan for. I think it's what the loan was actually used for. The data collectors, I believe, sampled some subgroup of people and asked what the loan was spent on.

by edge17 16y ago

shrikant 16y ago

[...] the people that receive these loans probably don't know what microfinance loans are; that's to say they probably just call them loans. And this is the crux of the issue. The table only denotes what the borrower took the loan for, and not for what actual use the money was put to. Basically it boils down to this: once the money is in their hands, unless the borrowers have had some information dissemination of a substantial sort, it can be used for any purpose. It is typically the lending party's duty to take solid steps towards educating the borrower as to the actual purpose of the loans, and MFIs in India (IMHO) were initially doing a stellar job of this (ok, well, SKS at least - I sat in on some of their 'group training seminars'). I'm not close to the domain now for about a year though, so I couldn't comment for sure any more. As an aside: (I don't think they'll take action against me for saying good things about them, so I'll go right ahead) SKS' impairment levels were so ridiculously low that I would end up manually re-calculating the figures to ensure Mondrian wasn't lying to me or our software wasn't badly broken. As another aside: there is also an emerging trend of 'micro-insurance' products (livestock insurance, crop insurance, 'hut' insurance, etc.) being offered by MFIs as well as large insurance companies which I did a field study on, which reached conclusions similar to what I learned from the SKS project - the illiterate and poor initially cannot even conceive that someone would want to help them out without shafting them, but with substantial education to a few key influential and smart members of the community, the message can be gotten across.

edge17 16y ago
The table only denotes what the borrower took the loan for, and not for what actual use the money was put to. Basically it boils down to this: once the money is in their hands, unless the borrowers have had some information dissemination of a substantial sort, it can be used for any purpose. I don't think (and I could be totally wrong, I don't know the process of actually getting one of these loans) that the left column denotes what the borrower took the loan for. I think it's what the loan was actually used for. The data collectors, I believe, sampled some subgroup of people and asked what the loan was spent on.