The government has abruptly shut down the branch offices of some microlenders, including Spandana, without respect for due process. There is talk of legally capping microfinance interest rates at levels — 10 to 15 percent a year — that would put many microlenders out of business. Such regulations would drive the poor back to the far more expensive private moneylenders and also to the state government.
Why would the government want to shut down or constrain microfinance, one of the only proven development success stories of the past 30 years?
The motives behind this campaign are twofold. The state is not a neutral umpire but rather has its own “self-help group” banking model, which lends at the micro level. Spandana and some of the other private microfinance groups are unwelcome competition. More generally, opposition to money lending has been frequent in the history of both India and the West. Not every loan will have a positive outcome, and it is easy to focus on the victims. Not all Indians have accepted the future of their country as an open commercial society with winners and losers.
My reaction to this is some heartfelt disbelief mixed with cynical acceptance. Of course the government would want to get in on the action – especially a government as historically corrupt and inept as India’s. (Its Doing Business ranking, which measures the regulatory costs of business, is 116 out of 155.) Is this the future of private sector-led development – success stories scale up to the point of financial sustainability, where they are seen as threats to bureaucrats and regulators, who then work to tax and constrain them?
I guess, when you get right down to it, that the environment in which a company operates is more important than ever. Microfinance institutions employ thousands of people who work to inject productive capital into the base of the pyramid. Why must governments see the private sector only as a threat, and never as a partner?
add to del.icio.us
add to digg
related at technorati
Like you, I am surprised that the Indian government may be moving to regulate microfinance. However, I cannot bring myself to express the outright criticism you do.
First, I do not think the NYTimes article can be taken as the rule. Rather, it is extremely disappointing and inspires little faith with its superficial reporting. It makes no mention on how many lenders were closed or why, seems based on a single visit by one person, and cannot be described as impartial.
Beyond the tone of the article, I think there is reason to stand back and question microfinance as the unrivalled success story it is claimed to be. I point you to a critique of microfinance, that I previously commented on.
I would not deny Microfinance's ability to help people, and would be happy if you can refer to studies/articles that test the long-term success of microfinance in increasing people's incomes. However, that, "the women keep returning, three, four times in a row" cannot be taken, a priori, as a sign of success.