Are we ever going to get a good article on the hugely important microcredit crisis in the Indian state of Andhra Pradesh? The WSJ took a stab on October 29, but the article was thin, added nothing to the FT’s earlier report, and spent more time rehearsing well-known facts about the microfinance industry than it did trying to explain exactly what was going on so suddenly and why. The WSJ didn’t even mention the precipitating cause of the crisis, an ordinance passed by the state governor on October 15 which essentially shut down a whole class of microfinance lenders.
Now the NYT has published its own attempt to cover the story, under the striking headline “India Microcredit Faces Collapse From Defaults.” The story does a good job of bringing us rapidly up to speed on the extent of the crisis:
Responding to public anger over abuses in the microcredit industry — and growing reports of suicides among people unable to pay mounting debts — legislators in the state of Andhra Pradesh last month passed a stringent new law restricting how the companies can lend and collect money.
Even as the new legislation was being passed, local leaders urged people to renege on their loans, and repayments on nearly $2 billion in loans in the state have virtually ceased. Lenders say that less than 10 percent of borrowers have made payments in the past couple of weeks.
I’m not sure that the language about legislators is true: the ordinance clearly states that “the Legislature of the State is not now in session” and that it is being promulgated by the governor.
More importantly, the NYT fails to mention the main reason why the ordinance was passed, which is that the government runs a rival microlending program, known as self-help groups, or SHGs. As Justin Oliver explains:
It’s only the MFIs that are affected by the current crisis. Clients in Andhra Pradesh have essentially stopped repaying MFI loans, but SHG loans continue to be repaid for the time being. It’s worth noting that some of the loudest complaints about MFIs have come from the Andhra Pradesh state agency that oversees and promotes the SHG program.
All of this starts getting very messy very quickly; the Center for Global Development’s David Roodman, who has been the foremost blogger covering the crisis in detail, feels the need to qualify one recent post by saying that “as an outsider, I only half-understand the extraordinarily complex situation.”
But the way to make sense of a complex situation is not to do what the NYT does, and simply concatenate a series of quotes from various important participants. In one long and frustrating passage, the NYT quotes Vasant Kumar, the state’s minister for rural development; Reddy Subrahmanyam, a government official; Vikram Akula, the chairman of SKS Microfinance; Vijay Mahajan, the chairman of Basix; Ela Bhatt, head of the Self-Employed Women’s Association; and then Mahajan again, this time identifying him as chairman of the Microfinance Institutions Network. They all talk their various books, and the NYT writers — Lydia Polgreen and Vikas Bajaj — seemingly just throw their hands up in the air and leave it to the reader to decide whom to believe.
That’s pretty much impossible, not least because the NYT fails to spell out all the biases: the story neglects to mention, for instance, that Basix has moved beyond microfinance to offer many other financial services, which explains why its chairman is willing to be quite critical of the industry.
The NYT also ignores a strong counternarrative which blames the whole crisis not on predatory microlenders but rather on the government of Andhra Pradesh. Impassioned blog entries along these lines from Eric Bellman at the WSJ and Vineet Rai at the Harvard Business Review are contentious (which is fine, they’re blogs), but they are also much more deeply informed than most of the reporting we’re seeing. Much the same can be said of Milford Bateman, who takes the other side of the debate with virulence and verve, accusing the microlenders of greedily looting the poor. If you read, say, Rai and then Bateman, you’ll learn a lot more about what’s really going on than you will if you try to follow the tenuous thread of the NYT article.