TWO CRISES OF INDIAN MICROFINANCE : WHY ARE THEY DISCONNECTED?

Balbir Jain Associate Professor of Economics

Motilal Nehru College (University of Delhi)

Benito Juarez Road, New Delhi, 110021, INDIA Email : balbirkjain@gmail.com

Revised Draft : May 31, 2011

Paper to be presented at the Second European Research Conference on Microfinance, Groningen, The Netherlands: June 16 – June 18, 2011

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Abstract

This paper is exploratory in nature. Analysis of the current crises of microfinance in the

state of Andhra Pradesh raises oft-repeated questions including the question of over-

indebtedness which has been unattended so far. The crisis of over-indebtedness among

the poor borrowers has been caused by endogenous factors including increased

competition among the ‘for profit’ microfinance institutions (MFIs). The poor borrowers

seek to overcome the crisis by various means e.g. cuts in their meager levels of

consumption and sale of assets. However, there is political intervention and another crisis

– non-repayment of dues on a mass scale is thus caused by exogenous factors. The paper

argues that the crisis of over-indebtedness has arisen because of the failure of the ‘for

profit’ MFIs to implement the moneylender’s strategy to keep the poor borrowers in a

perennial debt trap. The ‘for profit’ MFIs have gone beyond it because they have

transcended the limits of their lending to the poor due to their inability to overcome the

problems of ‘adverse selection’ and ‘moral hazard’.

Key words : adverse selection, consumption smoothing, debt trap, dynamics of poverty,

moneylender’s strategy, moral hazard.

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INTRODUCTION

Indian microfinance has plunged into a severe crisis due to non-payment of dues by a

large number of borrowers of the MFIs in the state of Andhra Pradesh. The crisis has

been both sudden and unexpected. Prior to the crisis which started in the fourth quarter of

2010, a very optimistic mood prevailed among the ‘for profit’ MFIs. This segment of

Indian microfinance had grown at a supersonic pace during the recent years. The maiden

IPO of the largest MFI - SKS Microfinance - had been oversubscribed fourteen times.

Then there was a sudden turn of events. There were reports of suicides by a number of

MFI borrowers. This was followed by political protests. The borrowers of the ‘for profit’

MFIs were openly instigated by the politicians not to pay their dues and the crisis of non-

repayment of dues on a mass scale was set in. Though the crisis of non-repayment is

restricted to one state - Andhra Pradesh; its ramifications are felt throughout the country

because Andhra Pradesh is cradle of Indian microfinance. 25 per cent of this sector is

concentrated in this state.

In case of the other segments of Indian microfinance - the self help group (SHG) based

microfinance – it is business as usual. Why do the two sets of the MFI’s face a dissimilar

situation when both of them are engaged in the same business? Non-repayment of dues

has shaken the foundations of a large number of the ‘for profit’ MFIs, why are the SHG-

based MFI’s unaffected?

Non-repayment occurs either due to willful default or due to inability to repay. The

supporters of the movement against the ‘for profit’ MFIs link the issue of non-repayment

to the problem of over-indebtedness i.e. it is due to the inability factor. But most of the

borrowers of the affected MFI’s are not over-indebted. However, both sets of borrowers -

over-indebted and others - have stopped the repayment of their dues.

From a political angle, it is a curious case. The microfinance industry has been getting

ample political support because microfinance has been accorded a high priority in the

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government’s strategy for poverty alleviation. However, a distinction needs to be made

between different segments. Local politicians have arguably a vested interest in one

particular segment – the SHG-based MFIs. The SHGs are increasingly being used as

political capital by politicians, states Aloysius Fernandez of MYRADA in annual

conference of Microfinance India (Microfinance India, 2007). Indeed the SHGs can play

a crucial role in promoting the vested interests of the politicians. In the recent assembly

elections in Tamilnadu, the SHGs are reported to have been used as vehicles for

undertaking ‘notes (money) for votes’ transactions of the unscrupulous politicians.

The rapid growth experienced by the ‘for profit’ MFIs has been, to a certain extent, at the

expense of the SHG-based MFIs. Unlike the SHGs, the ‘for profit’ MFIs provide just

loans; the restrictive practice of the periodic savings has been done away with and it has

given them an edge particularly among the myopic present-biased clients. But it has also

opened up the path towards indebtedness.

It has to be noted that Indian microfinance owes its stature to the socially motivated

leaders of the SHG movement. Establishment of the SHGs has not been an easy task. It

involves among other things training of its members in saving, lending and accounting.

There are many parts of India where microfinance could not take off despite immense

efforts1. We shall not go into its causes. The ‘for profit’ MFIs have not targeted the areas

where the microfinance movement has to be nurtured. They have concentrated on the

areas where it is already well-established particularly the state of Andhra Pradesh where

it has already reached the saturation point because of an elaborate SHG movement. Since

there is no scope for enrollment of new clients, they have intensified competition for

client acquisition – a fact which has been acknowledged in a number of reports including

Srinivasan (2009) and Ghate (2006).

The antipathy of the local politicians to the ‘for profit’ MFIs is thus not unexpected. But

it has not been easy for the dominant group of the local politicians, who belong to the

ruling party both at the state and the central levels, to disturb the functioning of the ‘for

profit’ MFIs. In normal circumstances they cannot risk the displeasure of their central

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leadership because the latter plays a decisive role in the selection of the party and

government functionaries at the stale level. But the crisis has precipitated to such a level

that the local leaders belonging to both the ruling party and the opposition have been

vying with each other in terms of aggressiveness against the ‘for profit’ MFIs. The result

has been a severe non-repayment crisis.

Without political interference, the crisis of non-repayment would not have occurred. This

is not for the first time that such a crisis has occurred. There have been cases of mass

defaults in the past too. It happened in certain districts of Andhra Pradesh in 2006. Again

a similar problem arose in Kolar district of Karnataka in 2009. But the response of the

industry has been lacking. Its response may be summed in these words: “The likelihood

that some borrowers might have problems of loan service has to be accepted and MFIs

geared to respond to the same in a manner other than forcible recovery, such as

rescheduling of loans and postponing of instalments” (Srinivasan, 2009). In this manner,

the problem of non-repayment which is a problem of the MFIs may be overcome. But

this does not address the root cause - the problem of over-indebtedness2. However, the

dissonance between the concerns of the poor clients and the concerns of the MFIs is quite

apparent.

Why does microfinance give rise to over-indebtedness? Over-indebtedness usually occurs

due to a persistent tendency of consuming ahead of income. Persistence of such a

problem calls for a change in the widely held perception of the policy makers and the

microfinance industry that microfinance provides livelihood finance. Though the other

purposes including consumption smoothing has been recognized by a number of studies

yet this aspect remains ignored at the level of policy makers. For example, the Reserve

Bank of India in its latest policy statement explains the characteristics of ‘qualifying

asset’ that define microfinance. The requirement is that not less than 75% of the total

amount of loans given should be for the purpose of income generation. Does such a

restriction actually work? Futility of such restrictions has a long history including the

loans provided for productive purposes by the public sector banks under the Integrated

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Programme for Rural Development (IRDP) during the eighties and nineties.3 This paper

will focus on the manner in which the microcredit is actually used.

In the context of the present crisis, it is quite common to use the term over-indebtedness

among the poor. But what does it mean? How is it measured? It is difficult to define over-

indebtedness due to a number of reasons. Is it difficulty to repay or inability to repay?

The problem in repayment may be due to seasonal or cyclical variation in income. In

another setting, the borrower may have to cut the consumption to repay the loan but her

income would be enhanced because of the productive assets acquired with the help of the

loan. Is it a sacrifice or over-indebtedness? The purpose and effect of the loan is,

therefore, quite crucial. Delinquency may not occur but the borrower may be pushed

below the subsistence level due to repayment of the debt dues. In extreme cases, the

borrower may have to sell her assets. To bear the burden of the debt, the child may have

to be withdrawn from the school and she may have to work as a child labourer. A loan is

repaid either by raising another loan or it is rescheduled. If it is due to inability to repay,

is it not over-indebtedness?

Measurement of over-indebtedness is even more difficult. A number of factors including

differences in tenure of the loan(s), purpose, effect on income, level and variation in

income make it difficult to measure indebtedness. An income generating loan may not

give rise to over-indebtedness despite a high annuity-income4 ratio. But in case of income

shocks arising due to seasonal or cyclical or idiosyncratic risks, repayment may be quite

burdensome despite a lower annuity-income ratio. Besides these methodological

problems, collection of data on over-indebtedness is quite difficult. Multiple borrowing is

usually the cause of over-indebtedness and the borrowers tend to conceal the other loans

while seeking another loan. If they reveal other loans they face the risk of rejection of the

application for the additional loan. Information regarding formal loans may be made

available by evolving an appropriate mechanism, but the informal sector loans would

remain out of preview of such an arrangement. Data on over-dues would also portray an

incomplete picture because of the possibility of the sale of assets by the over-indebted

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household. A similar situation arises when the borrower is compelled to cut down her

essential consumption.

What are the causes of over-indebtedness? We attempt to answer this question in terms of

moneylender’s strategy to keep the poor borrowers in a perennial debt trap. The

moneylender follows a very cautious approach. He has intimate knowledge about his

client and is able to overcome the problems of ‘adverse selection’ and ‘moral hazard’.

Moreover, he sets the annuities of his loan in such a manner that over-indebtedness is

avoided. The ‘for profit’ MFIs, on the other hand, have not been able to avoid over-

indebtedness. Unlike the moneylender, they are unable to overcome the problems of

‘adverse selection’ and ‘moral hazard’. By focusing upon the moneylender’s strategy we

follow a different path because the focus of the ongoing debate on over-indebtedness is

on two factors : (1) usurious practices of the ‘for profit’ MFIs and (2) multiple-lending.

We examine these factors in details and argue that they do not necessarily result in over-

indebtedness. The crucial factor is the failure to overcome the problem of lending for

purchase of goods and services which are not affordable within the given level of

borrower’s earnings.

Our discussion has centred on the use of the microfinance for the purchase of goods and

services which are unaffordable in case the poor borrowers because of their low incomes.

This indicates a negative impact of microfinance on the levels of living of the poor

borrowers which is the very antithesis of what microfinance stands for in the public

perception. But it has to be acknowledged that microfinance does not necessarily work in

the perceived manner.

Microfinance may also provide a means of smoothing household’s consumption across

the income shocks arising due to unemployment or sickness. Welfare gains of

consumption smoothing are very high in such situations. We examine these issues –

positive impact of consumption smoothing and negative impact of the purchase of

unaffordable goods and services including the temptations goods - in the context of

dynamics of poverty.

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This is an exploratory exercise. But it makes a strong case for redefining the role of

microfinance in poverty alleviation. Access to credit to the poor for income generating

activities has been raison d’etre of the microfinance. We find that the poor mostly use it

for other purposes. Even access to credit has a flip side; over-indebtedness among the

poor has occurred in a number of cases. At the same time, it has a positive side – it

provides a means of smoothing consumption. Since the welfare costs of consumption

fluctuations are very high for the households who are close to a subsistence level of

living, they have no option but to resort to costly consumption smoothing mechanisms in

the absence of a welfare state. Microfinance can play a vital role in such a setting.

However, it cannot be termed as a satisfactory arrangement because of a number of

reasons including the limited coverage of the poor in case of microfinance.

The paper is organized as follows: Section II gives a brief exposition of role of

microfinance in the context of dynamics of poverty. Since the focus of this paper is on

the problem of over-indebtedness among the poor, it is imperative to understand the

nature of variations in income of the poor households. The income flows of the poor

households are low, irregular and uncertain. Various income shocks arise due to seasonal,

cyclical and idiosyncratic risks. These aspects are explained in this section. Issues

pertaining to meaning of over-indebtedness among the poor are dealt in Section III.

Causes of over-indebtedness are discussed in Section IV which is further divided in four

sub-sections. This section begins with the analysis of the argument that over-indebtedness

is caused due to usurious practices of the MFIs and multiple lending. Sub-section IV.1

provides empirical evidence on the effective rates of interest charged by various MFIs. It

also provides data pertaining to the expenses of the MFIs. Subsection IV.2 examines the

issues pertaining to multiple lending and rescheduling of the loans. In Subsection IV.3 we

argue that usurious practices of the MFIs and multiple lending do not necessarily give

rise to over-indebtedness. Moneylender’s strategy in such a situation would be to keep

the borrower in a debt trap and avoid the over-indebtedness by overcoming the problem

of ‘adverse selection’ of the loans. The problem can be looked at another angle – some

poor households tend to use the borrowed funds for purchase of goods and services which

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they cannot afford. This problem is a sort of the problem of ‘moral hazard’. We argue in

subsection IV.4 that over-indebtedness is due to the failure of the MFIs to overcome the

problem of ‘moral hazard’. Concluding observations are given in Section V of the paper.

II. DYNAMICS OF POVERTY AND MICROFINANCE

The poor belong to two categories: chronic poor and transient poor or temporary poor.

Temporary poverty implies that a household may be poor at a given period and may be

non-poor in the subsequent period and vice versa. In other words, a temporal change in

poverty is not unidirectional but bidirectional. The chronic poor, on the other hand,

comprise mainly ‘earning capacity poor’ who would fail to generate enough income to

lift their family out of poverty even if they make full use of their earning capabilities.

The distinction between chronic and temporary poor is quite useful for understanding the

problem of poverty. The chronically poor may be in need of programmes to enhance their

endowments of human capital, or, in the case of poverty due to disability or old age, be in

need of permanent transfers. In contrast, the temporarily poor can be helped with

programmes which complement their own resources and help them to ‘bridge’ the period

that they are poor.

Making the distinction between chronic and temporary poor requires information on the

duration of poverty. In practice, this needs to come from panel surveys, which follow the

same households over time. In India there have been a few studies based on such panel

surveys including Lanjouw and Stern (1991).We explain the dynamics of poverty with

the help of data on poverty obtained from this study. The data sets pertain to the period

between 1957-58 and 1983-84. The data sets are quite old yet we believe that these data

sets are quite useful to furnish an illustrative example on the dynamics of poverty in

India.

Lanjouw and Stern’s study is based on a comprehensive survey of the households in an

Indian village for four years – 1957-58, 1962-63, 1974-75 and 1983-84. They have

ranked the households into income decile groups. We define the poor in a relative sense.

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In a particular year they comprise bottom 30 per cent of the population. Almost two third

of the population are poor at least once (Table 1). Only one third of the households are

immune to poverty.

Table 1 Incidence of Temporary and Chronic Poverty over Time

Particulars No. of households

No. of households covered in all surveys 111

No. of very severely chronic poor households (poor in all surveys) 5

No. of severely chronic poor households (poor in three surveys) 9

No. of moderately chronic households (poor in two surveys) 20

Number of temporary poor (poor in one survey) 41

No. of Non-poor households in all surveys 36

Incomes of the poor are very volatile. This is evident from Table 2 and 3.

Table 2

Status of Poor in the Subsequent Periods

Year No. of poor households

No. of households who escaped out of poverty in next period (period 2)

No. of households who fell back in poverty in the subsequent period (period 3)

1957-58

33 18 10

1963-64

33 20 3

1974-75

35 21 N.A.

Note : Calculated from Lanjouw and Stern (1991) Table 3 Dynamics of poverty

Percentage of households by income decile groups in current year

Percentage of households by income decile

I II III IV V VI VII VIII IX X

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groups in base year

I 0.35 1.73 1.03 1.38 0.69 1.38 1.03 1.03 0.35 1.03

II 0.31 1.56 0.94 1.25 0.94 0.94 1.56 0.63 1.56 0.31

III 1.14 2.00 2.00 1.43 0.86 0.00 0.57 0.86 0.28 0.86

IV 0.91 0.91 1.82 2.42 1.21 0.30 0.61 0.61 1.21 0.00

V 2.43 0.54 0.81 0.81 0.81 1.62 1.08 0.81 0.00 1.08

VI 0.27 0.27 0.00 0.81 1.62 0.81 1.62 1.89 1.08 1.62

VII 0.94 0.63 2.19 0.63 1.56 1.56 0.31 0.31 1.25 0.63

VIII 0.83 1.11 0.83 0.56 0.83 1.11 1.11 0.83 1.67 1.11

IX 0.34 0.69 0.34 0.34 0.34 1.38 1.03 2.07 2.07 1.38

X 0.69 0.34 0.00 0.69 0.69 0.69 1.03 2.07 1.38 2.41

Note : Calculated from Tables 7, 8 and 9 of Lanjouw and Stern (1991) Over a period of time, many poor households escape poverty and many non-poor are

pushed into poverty. At the same time many others stay poor. A number of questions

arise. What are the causes of chronic poverty? What are the factors that push the non-

poor into poverty? These questions have been examined in the Indian context by a

number of studies including Ojha (2007); Krishna (2006); Krishna (2004);and Lanjouw

and Stern (1991) among others. Chronic poverty in many cases is due to either loss of the

main earning member of the family or due to permanent disability. Another factor

responsible for chronic poverty is indebtedness due to unaffordable expenses on sickness,

injury and to a lesser extent on social ceremonies. Yet another reason for chronic poverty

is low productivity and high dependency ratio giving rise to the phenomenon of ‘earning

capacity poor’. On the other hand, according to these studies the non-poor are pushed into

poverty primarily because of sickness and injury, indebtedness, bad harvest, loss of

employment and lack of employment opportunities

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Traditionally microfinance has been viewed as a means of providing livelihood finance to

the poor. But money is fungible and it is not surprising to find that microfinance is

largely used for other purposes including consumption smoothing and repayment of past

loans. It is also used as consumer credit. In the next sub-section we shall discuss the role

of microfinance as a means of consumption smoothing for the poor households. Other

uses will be discussed in the subsequent sub-sections of this section.

II.1. Consumption smoothing

The effect of income shocks on consumption is quite large in case of the poor

households. Their levels of living are quite close to a subsistence level of living and large

cuts in consumption can bring distress to such households. Apparently welfare costs of

such fluctuations are quite large and the poor households are prepared to resort to costly

smoothing mechanisms if they are affordable. The poor households have limited choice

because social insurance systems are either non-existent or ineffective. To cope with the

income shocks they have to rely on the following:

• Savings

• Transfers from social support networks

• Sale of assets

• Borrowing from local credit markets

In case of savings, deviations from full consumption smoothing are likely to be

minimum; arguably deviations can even be zero in case the household sticks to the

average level of consumption even during the upheavals. Figure 1 refers to the

consumption pattern of a typical household which maintains a minimum level of level of

living with the help of savings. Its average income level is higher than the threshold level

but there are wide variations in income and consumption over time. Such variations are

quite usual in case of the rural households because of the triple whammy – low level of

earnings, irregularity and uncertainty - faced by them (see, e.g. Collins et.al, 2009).

Consumption variations are usually linked to income variations. They are also affected by

emergencies like major sickness.

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Figure 1 : Consumption Smoothing with the help of savings

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But manner in which a household have to cope with fluctuations in consumption brought

about by the fluctuations in income depends on its time preference. All households are

not far-sighted as in the case of the typical household depicted in Figure 1. Many

households particularly the myopic ones are unable to dissave because they have not

saved enough when the going was better. Transfers from social support networks (e.g.

reciprocal support from friends, relatives, neighbours, etc.) are not usually adequate.

They might have quite effective in the past. In contemporary India, they are not the rule;

they are exceptions (see, e.g., Abraham, 1986).

The other two options– sale of assets and local credit market - are quite costly and they

may not be available to all households. However, a large number of poor households use

them though to a limited extent largely due to inadequacy. Local credit market is

segmented, the poor and near poor lack access to commercial banking system for credit

facilities. The other segment comprises of informal moneylenders who have lost their

predominant position in the post-independence India due to changes in the legal and

political regimes. In view of lack of legal sanctions, enforcement of credit contracts is not

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an easy job for them. Before the advent of microfinance, chaotic conditions prevailed in

this segment of the rural credit market giving rise to lack of access to credit for the poor

and the near poor. Microfinance is now an option available in many parts of the country

but it is also quite expensive. Cost of microfinance would be a drag on the meager

resources of the poor and deviation from full consumption smoothing is likely to

significant. But the welfare costs of consumption fluctuations are very high in case of the

poor households. As such microfinance can provide an important means of smoothing the

consumption of the poor households across the risky events like unemployment, sickness,

etc. In the absence of microfinance, the deviation from full consumption smoothing

would have been much larger. In case of microfinance, there are two possibilities : (1)

average consumption level remains above the threshold level, this may be called the case

of indebtedness (Figure 2) and (2) average consumption falls below the threshold level,

the household may be temporarily below the poverty level and this may be called the case

of over-indebtedness (Figure 3).

Figure 2 : Consumption smoothing - Case of indebtedness

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Figure 2 depicts the case of a moderately myopic household. Its average consumption is

less than the average consumption of the far-sighted household because of the cost of

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borrowings. But the household does avoid slip into poverty despite substantial fall in the

income level during the downswing.

The case of an extremely myopic household is depicted in Figure 3. Either it does not

save during the upswing of its earnings or tends to purchase temptation goods and

services with the help of borrowed funds. In the event of emergencies, it is unable to

borrow since it has already borrowed up to the permissible level. Thus slip into poverty

during the downswing becomes inescapable.

Figure 3. Case of overindebtedness

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II.2. Income generating microcredit

For a number of decades, dependence of the poor households on the moneylenders for

borrowings was treated as a problem of indebtedness in the text books on Indian

economy. It was diagnosed as a major cause of poverty. The same view is still held by a

number of research studies on causes of poverty in developing countries like India (e.g.

Ojha, 2007; Krishna, 2006; Krishna, 2004; and Lanjouw and Stern,1991). In the context

of microfinance, there is a paradigm shift – it is now access to credit which is a paradigm

of the positive side; earlier in case of the moneylenders it was indebtedness – a paradigm

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of negative side. Enhancement of income generating activities is stated to be the raison

d’être of the microfinance. But money is fungible and it is not easy to control the end-use

of the credit by the lender. Prior to the advent of microfinance, a massive credit-based

programme – Integrated Programme for Rural Development (IRDP) - had been

undertaken in India with the sole objective of providing credit to the poor for business

investments. It ran into difficulties due to low recovery rate – it was just 41 per cent. But

in terms of usage, it sought to restrict the use of the credit for the intended purpose by

linking it to the acquisition of the productive assets. But returns to these investments in

most of the cases were not very high. The poor borrowers found it difficult to repay the

debt dues despite low and subsidized rate of interest. Why were the returns low? Like the

IRDP programme, this is also a key issue in the context of assessment of the impact of

the microfinance. However, the dominant view in the context of microfinance is that

returns are not low; they are very high and much higher than the prevalent rates of

interest of the MFIs. We, however, challenge this viewpoint.

The issue of returns to investment in case of microfinance has been addressed at three

levels: (1) given the concavity of the production function, the returns to investment are

expected to be very high in the wake of scarcity of capital (Armendariz and Morduch,

2005). (2) Anecdotal evidence is provided to show that enough opportunities exist for the

poor to obtain high return from the business investments (Goldberg, 2005). (3)

Experimental studies show very high returns to investment in case of the micro-

enterprises (De Mel, et. al.,2008 ).

Firstly, the issue is not the concavity of the production function. It is the question of

choice of technology. It is the question of low capital intensity of techniques vs. high

capital intensity of techniques. The issue has been discussed in development economics

in the context of conflicts between output and employment objectives (see, e.g., Sen,

1968; Stewart and Streeten, 1971). Despite higher employment potential, most of the

traditional techniques are not sustainable due to low returns. However, a few traditional

occupations have survived because of the special type of products like handicrafts etc.

There are also some occupations which are being run profitably by the micro-enterprises.

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Access to credit, therefore, opens limited opportunities and that too mostly for the skilled

persons.

Secondly, anecdotal evidence presented by numerous studies undertaken by the MFI

practitioners does not furnish unambiguous evidence. This is not to undermine the power

of positive anecdotes. But can they be replicated on a massive scale? Are the

opportunities not specific? For example, a number of petty traders are able to obtain quite

high returns to their investments even in an overcrowded market. Many others, on the

other hand, find the going quite tough. It is not the number of anecdotes which matters, it

is their relevance to the unskilled poor persons. This requires in-depth study of the

circumstances, opportunities, and the requisite skill levels. Moreover, the highly

successful portrayals presented by the selective anecdotal evidence do not find

corroborative support. In this context we refer to the diaries of the microfinance clients

reported in The Portfolios of the Poor (Collins, et.al., 2009) which are not supportive of

such a viewpoint.

The experimental studies on micro enterprises show very high returns to investment. It

averages in the range of 4.6-5.3 per cent per month (de Mel, et. al., 2008). The situation

is presumably set for a big role for microfinance in growth of micro-enterprises. But there

are a few caveats : (1) The studies also show wide variations in the returns. Almost 20 per

cent micro-enterprises show negative returns. (2) The studies cover those micro-

enterprises which are in existence for more than 5 years. (3) Success in micro-enterprises

depends crucially on the entrepreneurial traits which are observed in just one-third of the

target population. (4) Many enterprises covered by the studies are not free entry

enterprises. Certain levels of skills are a pre-requisite of the entry. (5) For establishment,

sustenance and growth, the micro-enterprises tend to rely on their own resources. For

growth, they tend to rely on reinvestment of their profits. In other words, micro-

enterprises with high returns do not tend to rely on credit for their business activities.

Lastly, when microcredit is used for business purposes, it is mostly in case of the

established micro-enterprises – many of them are non-poor (see, e.g. De Mel, et. al.,

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2008a). Arguably, such borrowings are for development; they are unlikely to be a part of

the poverty eradication strategy.

Repayment of past loans

This is one of important uses of microcredit. There can be two reasons: (1) substitution of

a high cost loan; and (2) unbearable over-dues of a previous loan. The second reason

seems to be more predominant. Microfinance is not cheap credit and informal

moneylenders are not necessarily very expensive. Very high rates of interest e.g. monthly

rate of more than 5 per cent in the informal credit market are usually for the gamblers and

drunkards; the usual rate of interest charged by the moneylenders lies between 1.5 and

5.0 per cent and the average rate is around 3.3 per cent per month i.e. a nominal rate of 39

per cent5 (Dreze, et. al., 1997). According to another study, it is 2 per cent flat per month

(Reddy, 2007). The informal moneylenders have an edge over the MFIs because of

flexibility and convenience. They do not have rigid terms and conditions; they adjust in

accordance with the borrower. Even their rates of interest are renegotiable and they are

usually renegotiated to the advantage of the borrower (see, e.g. Collins, et. al., 2009). Due

to lack of legal sanctions, their sphere is limited and as such they do not offer a big

challenge to the microfinance.

Like rescheduling of loans, the act of obtaining a new loan to repay the post loans usually

implies prolongation of indebtedness and in many cases it may just be a prelude to over-

indebtedness. In terms of Figure 2 and 3, it would tend to increase the gap between

average income and average consumption which is indicative of a bigger interest burden.

III. MEANING OF OVER-INDEBTEDNESS OF THE POOR

Microloans are discharged by a sequence of equal repayments (annuities) made over

equal periods of time. Each repayment (annuity) can be considered as consisting of two

parts: (1) interest on the outstanding loan and (2) repayment of a part of the loan. Let us

consider the case of a borrower who has to repay Rs.1000 every month for 12 months to

discharge her microloan of Rs.10,000. She has used the loan for investment in her

business and it has enhanced her monthly income by Rs.1200 for these 12 months.

19

Repayment is a smooth affair. Let us now consider another possibility. The same loan has

been invested by her and there shall be no returns in the first 6 months and thereafter

there would be a monthly return of Rs.1350 for the next 12 months. In this case monthly

rate of interest is around 3 per cent and monthly rate of return is more than 5 per cent. But

the household finds it difficult to arrange the first six instalments. Is it not a case of over-

indebtedness? Is it a case of sacrifice? Arguably, this is a case of over-indebtedness of

avoidable nature.

In many cases, the business ventures may not succeed. This has been one of the reasons

for low repayment rates in case India’s Integrated Programme for Rural Development

(IRDP). Non-repayment due to failure of activity has also been reported in case of Self

Help Groups (SHGs). A report prepared for the Planning Commission finds that 19

groups out of 99 groups had not made any repayment (Ekatra, 2007). One of the reasons

is failure of the income generating activity. The failures are reported in case of usage of

credit for buffalo-rearing, goat rearing and pig rearing. As a result the repayment rates

are quite low and there have been defaults by the borrowers.

It is probable that the income generating activity may fail but may not lead to non-

repayment. The MFIs have quite strong collection mechanism and the borrowers are

pressurized to make the repayments. Consider the case of a poor borrower who is just

living at a subsistence level. He takes a loan for an income generating activity and fails.

Debt burden would become unbearable for him and he would be pushed a sub-

subsistence level of living. This is undoubtedly a case of over-indebtedness.

Many MFIs provide credit exclusively for income generation activities. Despite this

restriction it is used for many other purposes including payment of other loans,

consumption smoothing and consumer credit. When it is used for payment of other loans

and the debt burden becomes unbearable then over-indebtedness is not caused by

microfinance. Nevertheless the problem exists.

20

In case of consumption smoothing, if the debt burden pushes the household below the

subsistence level then we cannot unambiguously say that microfinance has caused over-

indebtedness. The household may have to choose between sub-subsistence level of living

and deprivation. One has to move beyond microfinance to find a solution.

Access to credit is likely to lure many poor households into a debt trap. They cannot

resist the temptation. They may use the credit to purchase a fridge or a TV set or they

may spend the borrowed money on social celebrations. It may be a smooth affair for a

while. But trouble starts when some emergency like sickness or lack of employment

arises. An additional loan can then expose the household to over-indebtedness.

We have viewed over-indebtedness as a situation when a household is pushed below the

subsistence level because of the debt burden. Multiple borrowings to repay the past loans

or rescheduling of loans to adjust the overdues do not overcome the problem; the poor

borrowers just get some reprieve.

IV. CAUSES OF OVER-INDEBTEDNESS

Over-indebtedness has been attributed to usurious practices of the MFIs and multiple

lending by the MFIs. But over-indebtedness has also been found among farmers in India

who had borrowed from commercial banks at much lower rates of interest. The

situational context of the borrower is of crucial importance. Role of the ‘for profit’ MFIs

and the situational context of the borrowers need to be examined to trace the causes of the

current crisis of over-indebtedness. One more factor has been suggested in the previous

section: failure of the loan-financed business ventures of the poor. We shall discuss these

factors in this section.

IV.1. Rate of interest of the MFIs

The MFIs state their rates of interest in different forms. In some cases, it is flat rate of

interest. Others calculate interest charge on reducing balance basis. The frequency of

instalments also differs. In some cases, it is monthly instalment. In case of others, it is

21

weekly instalment. Then there are additional charges. A number of MFIs charge

processing fees and/or upfront fees.

In Table 4, we present comparable rates of interest of a number of MFIs in India. We

have attempted to make them comparable by calculating the effective rate of interest. The

rate of interest actually earned in a year is called the effective rate of interest.

Table 4

Effective Rates of Interest charged by Indian MFIs in 2008-09

Name Type Terms Effective rate of

interest

Cost of

borrowin

g

Operatin

g

expense

ratio

AWS NGO-MFI 21% reducing

balance,

upfront fee :

2%

28.00%

(24.95%)

10.64% 2.85%

Adhikar NGO-MFI 10% flat,

processing fee

: 3.5%

30.0% (26.29%)

11.26% 10.32%

Annapurna NBFC 15% flat,

monthly

instalment

30.12%

(26.62%)

N.A. N.A.

AFSL NBFC 24.13-27.29%

reducing

balance;

processing fee

: 4%

38.37-42.85%

(32.57-35.79%)

11.86% 12.92%

AML NBFC 12.5-15% flat;

upfront fee

:1.15-2.5%

26.58-39.51%

(23.62-33.40%)

9.43% 8.04%

22

BMPL NBFC 15% flat 30.12%

(26.62%)

8.47% 10.53%

BFL NGO-MFI 15% reducing

balance;

upfront fee :

1%

18.30%

(16.93%)

9.28% 4.39%

CMC Section 25

company

27% reducing

balance

30.91%

(27.00%)

13.51% 14.08%

CReSA NBFC 12.5% flat,

upfront fee :

1%, processing

fee : 2%

31.92-34.74%

(27.78-29.90%)

10.44% 8.08%

CDC NGO-MFI 18% reducing

balance

19.56%

(18.00%)

10.92% 3.72%

Equitas NBFC 10-14% flat 20.48-29.39%

(18.70-25.90%)

14.42% 12.14%

EMFIL NBFC 15% flat 30.12%

(26.62%)

7.69% 13.07%

FFSL NBFC 12.5-15% flat,

processing fee

: 2%

31.92-38.04%

(27.78-32.34%)

12.75% 5.71%

GSGSK NGO-MFI 3 year loan,

13% reducing

balance,

service charge

: Rs. 250.00

18.0%

(16.63%)

9.6% 2.02%

GFSPL NBFC 50 week, 12%

flat; upfront

fee : 1% to 3%

28.15-33.84%

(24.86-29.23%)

11.21% 10.40%

GVMFL NBFC 10

week/100week

110.68%/29.12

%

12.08% 13.10%

23

; no

interest/12%

flat; upfront

fee : 7.5%/3%

(75.05%/24.86%

)

GU NGO-MFI 24% reducing

balance

26.82%

(24.91%)

9.48% 4.22%

HiH NGO-MFI 12% reducing

balance;

upfront fee :

3%

19.36%

(17.83%)

10.85% N.A

IDF NGO-MFI 15% reducing

balance;

upfront fee :

2.25%

21.19%

(19.38%)

9.21% 4.30%

IIMF Co-operative

society

18% reducing

balance;

processing fee

: 1%

21.87%

(19.94%)

9.77% 5.38%

JFSPL NBFC 24 to 33%

reducing

balance

26.83%- 38.48%

(24-33%)

10.38% 28.32%

Janodaya NGO-MFI (in

the process of

transformatio

n as NBFC)

14% flat,

monthly

instalment

27.96%

(24.91%)

7.97% 7.94%

MMFL NBFC 18-21%

reducing

balance,

weekly

instalment

19.69-23.32%

(18-21%)

12.97% 3.62%

PMACS Co-operative 18% reducing 24.25% 11.99% 2.25%

24

society balance;

processing fee

: 2%

(21.91%) (cross-

subsidy)

RASS NGO-MFI 17% reducing

balance;

upfront fee :

1%

20.67%

(18.94%)

10.49% 2.30%

(cross-

subsidy)

RGVN NGO-MFI 10% flat; 5%

upfront

security

deposit

21.55%

(19.68%)

11.10% 6.76%

RMED NGO-MFI 15% flat;

weekly

instalment;

membership

fee : Rs.100;

processing

charges : Rs.

100

38.04%

(32.34%)

10.30% 5.6%

SAADHN

A

NGO-MFI 15% flat;

weekly

instalment

32.41%

(28.14%)

10.73% 8.41%

SUWS NGO-MFI 15% flat,

weekly

instalment;

10% security

deposit

40.53%

(34.14%)

7.06% 9.11%

Sahara

Uttarayan

NGO-MFI 12.5 to 15%

flat; security

deposit : 10%;

monthly

29.67 - 36.92%

(26.85-31.83%)

10.62% 7.64%

25

instalment

SRFS Section 25

company

16% reducing

balance

17.23%

(16%)

9.56% 3.32%

SKDRDP NGO-MFI 15% reducing

balance;

service

charges : 1%

18.30%

(16.93%)

7.78% 3.44%

SKSMPL NBFC 23.6 and 28%

reducing

balance

26.55- 32.21%

(23.60-28.00%)

9.58% 7.96%

SMILE NBFC 12% flat 23.70%

(21.46%)

11.12% 2.70%

SONATA NBFC 18% flat;

processing fee

: Rs. 100

39.45%

(33.72%)

13.02% 11.49%

SSFL NBFC 21-24% ,

declining

23.14 -26.82%

(21-24%)

11.48% 5.56%

SMCS Section 25

company

18% reducing

balance;

processing fee

: 1%

21.87%

(19.94%)

10.20% 2.70%

SSCI NBFC 13.5 to 15.0%

flat

28.89- 32.4%

(25.44-28.14%)

8.59% 7.17%

UFSPL NBFC 24-28% ,

reducing

balance

26.82-31.89%

(24-28%)

9.60% 22.63%

VFSPL NBFC 12.5% flat;

security

deposit : 10%

33.20%

(28.75%)

8.24% 10.65%

WOMAN NGO-MFI 12% flat; 24.65% to 9.39% 7.54%

26

processing fee

: Rs. 25 to Rs.

100

26.10%

(22.24-23.80%)

Source : Crisil (2009), India Top 50 Microfinance Institutions, www.crisil.

High rates of interest in case of microfinance are usually justified due to high transaction

costs. But the data does not support this claim (Table 4). The rates of interest of many

MFIs are much higher than their cost recovery levels. Prior to the crisis, high profit

potential of the MFIs had generated a boom in the share market for them

However, it is argued that these rates of interest are lower than the rate of interest of

traditional moneylenders. But the loan products of the MFIs are quite different. The MFIs

demand regular repayment with little flexibility. The moneylenders adopt a very flexible

approach. Due to lack of legal sanctions, they cover a very small part of the market and

usually lend very small amounts much smaller than the ‘microloans’. Transaction costs

are very high for such loans. There is one example of a loan product of an MFI which is

comparable. GVMFL, for example, has offered a 10 week loan of Rs. 1000 (around $22)

by charging one time fee of 7.5 per cent. The effective rate of interest in this case is

110.68%. But the example of GVMFL has not been emulated. Apparently, the cost of

transaction is quite high. It seems that in such a sub-market, the informal money lenders

would hold the sway. In other words, microfinance caters to $500 (around Rs. 22,000)

loan market; $50 (around Rs. 2,200) market, by and large, remains the preserve of the

informal sector moneylenders. The segmented nature of these two markets emphasizes

their non-competitive nature and, therefore, the argument of the ‘for profit’ MFIs that

their rates of interest are lower than the informal sector is implausible. Moreover, there is

a basic difference – due to lack of legal sanctions, the informal sector moneylenders

operate with restrictions. Arguably, like the ‘for profit’ MFIs if they have legal sanctions

then the MFIs could not compete with them even in the $500 loan market which is the

mainstay of the MFIs.

27

To sum up, the data on effective rates of interest shows that a number of ‘for profit” MFIs

have been following usurious practices. This is evident from the Tables 4 and 5.

Table 5

Effective Rates of Interest charged by Types of Indian MFIs in 2008-09 (No. of MFIs)

Effective Rate

of Interest

NGOs Non-Banking Finance

Companies (For profit )

Section 25

companies

Co-operative

societies

Less than 24% 8 2 2 1

24-30% 3 6 1

30-36% 3 10 1

More than 36% 2 2

Source : Table 4

IV.2. Multiple lending and rescheduling of loans

Difficulties to repay the instalments in time generate a demand for additional loans.

Increased competition among the MFIs has made it easy for the borrowers to seek a

number of loans. Many MFIs, on the other hand, encourage rescheduling of the loans

when they find that over-dues in case of certain clients are mounting. This gives a

glittering touch to the balance sheets by keeping portfolio at risk (PAR) at negligible

levels. They get a reprieve but the problem persists and becomes more acute because of

the higher annuities which they have to dole out by the poor borrowers.

IV.3. Beyond moneylender’s strategy

Rural indebtedness had been an important topic included in the text books on Indian

economy till the seventies. It lost its eminence because of the changes in the legal and

political regime. Professional moneylenders almost disappeared from the rural scene. The

segment of the credit market which used to serve the poor and the vulnerable had become

quite chaotic. Part-time petty moneylenders in the guise of friends and relatives have

filled a part of the void. Despite lack of credit facilities for the poor and the vulnerable

the return of the moneylender has not been an acceptable proposition. The reason is

simple : level of indebtedness had come down drastically. Darling’s famous description

28

– a peasant is born in debt, he lives in debt and dies in debt – had lost much of its

validity. Current crisis of over-indebtedness takes us back to moneylender’s strategy of

keeping their poor borrowers in a debt trap a la Darling. Have the MFIs, intentionally or

unintentionally, been implementing the moneylender’s strategy in which they have

failed? Over-indebtedness is not a part of the moneylender’s strategy because no one

would kill the goose which lays a golden egg. The MFI’s lack the moneylender’s acumen

because they have failed to overcome the problems of ‘adverse selection’ and ‘moral

hazard’. The problem of ‘adverse selection’ has emerged due to (1) use of loans for the

purchase of temptation goods; (2) lack of control over the end use of the borrowed funds

by the poor households; and (3) provision of loans to the poor households for business

investment irrespective of opportunities and capabilities. Further the problem of ‘moral

hazard’ has occurred due to the poor borrower’s purchase of less essential goods with the

help of borrowed money which are unaffordable at their income levels.

IV.4. Whither loan-funded micro-enterprises for the poor and vulnerable?

The experimental studies on micro enterprises show very high returns to investment (De

Mel, et. al., 2008). But the poor households do not own the micro-enterprises. Why can’t

the poor establish the micro-enterprises? It is argued that they lack capital. Arguably,

microfinance can alleviate poverty by providing credit to the poor. Indeed this is the

raison d’être of the microfinance. But can the loan-funded newly established micro-

enterprises perform? Can the targeted households run such micro-enterprises? Have they

the requisite traits? Experimental studies show that almost two-thirds of the self-

employed persons lack such traits. This is not an unexpected result because in most cases,

self-employment is not by choice. Lack of wage employment pushes a large number of

unskilled workers to self-employed jobs.

The experience of providing credit to the poor borrowers under the various schemes as

well as by the MFIs does not match the optimism of the proponents of microfinance on

the basis of anecdotal evidence. The reports on the working of IRDP and on the working

of SHG-linked MFIs are quite revealing. For example, in case of cattle rearing (which is

of course not a skilled job) the reports of deaths and poor quality of the cattle are

29

unusually high. Arguably, a number of such loans are obtained under false pretences.

Whether it is a case of business failure or of the dissipation of the loan money on the

purchase of temptation goods and services, the consequences are severe for the poor

households. They are either over-indebted or they default if it is not difficult. It was not

difficult to default in case of loans under the IRDP, the default rate was as 59 per cent –

the recovery rate was just 41 per cent. Given the strong collection machinery of the MFIs,

default is no longer easy – resort to coercive methods is a distinct possibility. Over-

indebtedness is the outcome.

Concluding Observations

In the context of poor borrowers, it is imperative to ask: is microfinance a problem or a

solution? After all, like the informal moneylenders the microfinance particularly ‘for

profit’ MFIs have been exclusively engaged in the business of money-lending. In the

realm of public policy, return of moneylender is unthinkable. Microfinance, on the other

hand, has a positive and pro-poor image because of the contributions of the socially

oriented leaders of the NGOs who have initiated and nurtured the microfinance

movement in its formative years. At this juncture, it may be argued that over-

indebtedness among the poor borrowers is just an aberration. Baby (microfinance) cannot

be thrown with bathwater (over-indebtedness).

Is over-indebtedness just an aberration?Are all the borrowers of the MFIs likely to over-

indebted? To answer this question, we divide the borrowers of the MFIs in 4 categories :

(1) far-sighted and high ability (non-poor) borrowers; (2) far-sighted and low ability

(poor and near poor) borrowers; (3) myopic and high ability (non-poor) borrowers; and

(4) myopic and low ability (poor and near poor) borrowers. In the context of over-

indebtedness, we shall focus on the fourth category i.e. myopic and low ability (poor and

near poor) borrowers. However, there exists considerable empirical evidence which

shows that this category is likely to under-represented among the microfinance clients.

The poorest of the poor are not preferred clients of the ‘for profit’ MFIs. In other words,

over-indebtedness is the problem of a few clients.

30

But what does the data show? As argued earlier, measurement of over-indebtedness is a

difficult task. But available evidence suggests that over-indebtedness is not a marginal

problem. Expansionary and aggressive policies of the ‘for profit’ MFIs in the saturated

areas like Andhra Pradesh has given rise to the phenomenon of multiple lending. It has

resulted in high incidence of over-indebtedness. Easy access to credit has given rise to

over-borrowing by the myopic poor and near poor households.

We have emphasized the role of microfinance as consumption smoothing device in the

context of seasonal, cyclical, life cycle and idiosyncratic risks. But it gives rise to

indebtedness and fall in average consumption level (Figure 2). Looking at the experience

of the advanced countries, one finds that social insurance has been used for coping with

the income shocks arising due to unemployment and sickness. In other words, it is

imperative to ask : Do the poor need credit or transfers? And there is a flip side of access

to the credit. It may not be used for coping with the income shocks arising to the various

risks faced by the poor households; they may use it for the purchase of temptation goods

and services.

Despite the missionary zeal of its founding fathers, there is lack of unanimity with regard

to its role in poverty alleviation. Even after more than three decades of microfinance

movement, impact of microfinance on poverty is still a matter of debate6.

Is microfinance a good or a bad for the poor? Our analysis has depicted at least two

situations where microfinance is a bad. Loss making and loan-financed micro enterprises

would push the poor and the vulnerable below the subsistence level. Loan-financed

expenditures on purchase of temptation goods and service which are unaffordable for the

poor and vulnerable would also have the same implication.

Notes

1A large number of SHGs have been established by the NGOs for which the NABARD

provides them grants. Ratios of grants released and grants sanctioned in various states of

India give an indication of the level of success achieved by the NGOs in establishing the

31

SHGs (Appendix Table 1). Establishment of the SHGs is just a first step. Their success

depends on the repayment levels which are in many cases below the threshold level.

Appendix Table 2 gives an inter-state comparison of their recovery performance which

shows that the SHG movement has yet to be nurtured in a number of states and the ‘for

profit’ MFIs are not attracted to these states.

2Over-indebtedness among the poor occurs when a borrower is unable to pay her debt

dues while maintaining a subsistence level of living; the debt burden pushes her below

the subsistence level. It represents a more severe situation than indebtedness which has

been aptly described by M. L. Darling in these words : a peasant is born in debt, lives in

debt and dies in debt in the context of pre-independence India. In the post-independence

India, the situation had undergone a major change due to the changes in the legal and

political regimes. The problem of indebtedness was due to the dominance of the

moneylenders in the rural credit market. But their share had drastically come down from

a level of 61 per cent in 1960-61 to a mere 16 per cent in 1991-92.

3 IRDP is arguably a forerunner of microfinance in India. Till March 1999, total credit

mobilized by this programme was Rs.225.42 billion. Total investment including subsidy

was Rs.339.53 billion. Number of beneficiaries was 54 million households. Arguably it

was not implemented efficiently. The recovery performance was quite poor; it was a mere

41 per cent. The programme had limited success as far its impact on poverty was

concerned.

4 An annuity is a sequence of payments, usually equal in size, and made at equal intervals

of time. Although the term ‘annuity’ indicates annual payments, its meaning in common

use has been broadened to include payments at regular intervals which may be a week or

a month.

5These rates have calculated from Dreze (1997) .

6To substantiate our argument, we furnish Appendix Table 3 derived from NSS data on

consumer expenditure and size of land holdings.

7The debate centres on the interpretation of the data sets obtained from extensive quasi-

experimental surveys conducted during nineties in Bangladesh (Pitt and Khandekar,

1998; Morduch, 1998; Roodman and Khandekar, 2009; Pitt, 2011). The method of

identification of the poor in these studies raises a number of questions. According to the

32

criterion based on land holding/ownership, the poor (target group) comprise 85 per cent

of the population. Arguably this method is not reliable particularly when only 15 per cent

are excluded. The landless and marginal land-holders, on the one hand, and the poor, on

the other hand, are widely different categories.6 Type I and type II errors are likely to be

considerable. Type I error implies the exclusion of the poor from the list and type II error

implies inclusion of the non-poor. Target population comprises of participants of

microfinance programme and non-participants. Comparison of variables like educational

level across the participants and non-participants suggests that the extreme poor are

under-represented among the participants of the microfinance programme. Thus on the

one hand, there are type I and type II errors. On the other hand, the extreme poor are

under-represented among the participants. Can the results based on such an exercise be

alluded to as the impact of microfinance on the earnings of the poor?

Appendix Table 1

Grants released and grants sanctioned for establishment of the SHGs in selected states as

on March 31, 2010

State Grants released (Rs. Million)

Grants sanctioned (Rs. Million)

Grants released as percentage of grants sanctioned

Haryana 2.932 13.197 22

Punjab 2.141 9.711 22

Himachal Pradesh 10.787 23.300 46

Jammu & Kashmir 1.676 3.546 47

Rajasathan 12.517 32.162 39

Bihar 13.731 42.515 32

Jharkhand 6.075 12.495 49

Orissa 9.499 16.983 56

West Bengal 13.383 34.019 39

Madhya Pradesh 13.591 40.674 33

Chattishgarh 6.833 13.433 51

Uttar Pradesh 85.188 288.079 30

Uttaranchal 5.424 26.378 21

Gujarat 14.486 42.549 34

Maharashtra 79.337 145.009 55

Karnataka 13.877 28.717 48

Tamilnadu 14.795 23.239 64

33

Source : NABARD (2010), Status of Microfinance in India 2009-10, Mumbai : National Bank for Agriculture and Rural Development Appendix Table 2 Recovery Performance of Public Sector Commercial Banks Loans to the SHGs during 2009-10

(Total outstanding loans against SHGs in Rs. Million)

Percentage of recovery to demand from the SHGs State

Less than 70 % 70%-90% More than 90%

Haryana 62.78 (2) 898.72(4) 82.64(9)

Punjab - 97.30(5) 378.34(10)

Himachal Pradesh 2.93(2) 28.2(1) 504.84(8)

Jammu & Kashmir - 36.20(2) 8.10(1)

Rajasathan 18.84(3) 1947.85(5) 636.35(5)

Assam 1998.40(4) 452.09(6) 571.14(4)

Bihar 2187.56(8) 1500.29(4) 76.36(3)

Jharkhand 418.54(5) 1296.02(7) 736.99(3)

Orissa 1164.00(5) 2882.97(7) 5793.41(5)

West Bengal 2854.19(4) 2483.32(8) 2(1952.24)

Chattisgarh 201.85(3) 82.23(5) 1008.81(7)

Madhya Pradesh 1753.65(10) 1046.03(4) 382.78(7)

Uttarakhand 84.44(3) 162.61(4) 139.68(2)

Uttar Pradesh 8041.74(7) 1824.41(6) 177.02(6)

Gujarat - 672.58(8) 396.17(7)

Maharashtra 1760.76(6) 2736.83(7) 4720.24(8)

Andhra Pradesh 60.28(1) 9467.44(5) 76477.87(14)

Karnataka 33.69(3) 430.30(4) 12367.81(12)

Kerala 33.96(1) 1827.74(2) 4322.61(9)

Tamilnadu 1097.99(2) 3375.33(7) 26279.37(9)

Note : Numbers of banks are given in the parenthesis. Source : NABARD (2010), Status of Microfinance in India 2009-10, Mumbai : National Bank for Agriculture and Rural Development. References

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