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High Growth is Said to be “Biggest Factor in India’s Micro-Credit Crisis”

On Monday over seventy five people gathered at St. Mark’s Cathedral to hear an expert panel speak about the global implications of India’s micro-credit crisis.  Among the panelists were David Roodman, a senior fellow at The Center for Global Development Rick Beckett, president and CEO of Global Partnerships, Chris Wolff, senior director at accion international and Peter Bladin, executive vice president at the Grameen Foundation.  Prior to the event, Global Washington members working in micro-finance gathered for a private round table discussion to examine what their organizations could learn from this crisis.

The event kicked off with a fifteen-minute crash coursegiven by David about what had happened to cause the micro-finance crisis in the India.  He explained, that the region of Andhra Pradesh had been experiencing a very high rate of growth in micro-finance for the past twenty years or so.  Among micro-finance providers was Sks, a large MFI that went public at the end of last summer.  The organization was founded by Vikram Akula, whom was previously valued at an astounding 90 million dollars.  These big numbers hit the papers and showed how much money was being made off of the backs of the poor, which created some negative back lash towards micro-finance.

Roodman said: “there were many causes from global warming to political parties but I do think the main problem was fast growth, credit just became too easy.”  He went onto say: “should we blame profiteering for what happened in India?  My answer is no” In addition to high growth, Roodman seemed to think investors needed to take more accountability for the bubbles that were being created by this oversees capital.

Roodman explained three main notions that surround micro-finance.  Firstly, he expressed the idea of micro-finance as helping people escape poverty.  When describing this notion he boldly stated “we don’t have evidence it reduces poverty.” The second notion he described was micro-finance as freedom.  Here, Roodman brought up several fantastic examples from the book: Portfolios of the Poor which he used to make the point that “poor people don’t have perfect financial services,” such as health insurance.  Therefore micro-finance can be one more tool that helps the poor in the times that they are not able to cover their expenses.  The final point he made was the idea of micro-finance as industry building.  Here he gave the famous example of the Grameen Bank, which has created thousands of jobs and improved the industry in Bangladesh. From this overview, the discussion was then opened up to the panel of people that represented micro-finance practitioners to see what their interpretation of Roodman’s thoughts were.

Beckett embellished on Roodman’s point about the bubble saying: “it is not only the amount of capital, it is the nature of the capital” that we need to pay attention to when looking at investments in micro-finance.  While Wolff highlighted that we need to use this event in India as a learning experience, he said we must all ask the question:” How can we use this situation to be better, to be more client focused?”  Bladin hinted that profit may have played a role in the problems in India when he said: “you’ve got to have the double bottom line and measure how you are reaching the people there.” Ultimately, while most panellists seemed to agree with Roodman’s points, there was a lot of discussion about how to further expand these lessons all the way from India to the MFIs operating in Seattle.

One of the few points of contention seemed to be whether micro-finance had truly made an impact or not.  While Beckett acknowledged that micro-finance may not be perfect, he said: “One of the great challenges in global development is there are very few ways of reaching 100’s of thousands of people. Micro-finance does this so it has the ability to serve as a sustainable channel for other things…. There just aren’t that many things that do that.”  Others brought up the point that while there was no evidence that micro-finance was actually pulling people out of poverty; there was also not evidence to the contrary.  Overall there seemed to be a consensus that regardless of the result of these studies, micro-finance had succeeded in making poverty more liveable, so this form of development is at least providing a short-term solution. “There is a piece of this that is important for us to own, that MF got romanticised…and we fell in love with it” said Beckett.  Everyone seemed to agree that recent events in India were an opportunity to see some grounding realities in the world of micro-finance, but not to fall out of love with the field entirely.

To read more about the event please visit the KPLU Humanosphere recent posting.