The Association of Karnataka Microfinance Institutions (AKMI), a community development and advocacy organization in rural Karnataka, India, recently announced the release of an independent report on last year’s delinquency crisis in the region.
AKMI commissioned CGAP (Consultative Group to Assist the Poor), a Washington-based policy and research center, and EDA Rural Systems Private Limited (EDA), a research and capacity building organization based in India, to research and write the report. The final report, entitled “Competition and the Role of External Agents: The 2009 delinquency crisis in southern Karnataka”, outlines a number of key factors contributing to the delinquency crisis, as well as provides actionable recommendations for stakeholders [1].
At the time of the crisis, some microfinance analysts argued that it was caused by clients borrowing excessively from multiple lenders and then finding themselves unable to pay off their loans. The resulting defaults forced some microfinance institutions (MFIs), especially those with poor client tracking systems, to reduce operations [2].
The report offers several other issues contributing to the crisis. In addition to multiple borrowing, the report cites high default and suicide rates in the Kolar District; a downturn in the silk industry in the town of Sidlaghatta; an anti-MFI edict by Muslim clerics in the town of Ramanagaram; Hindu-Muslim riots over a mosque in the city of Mysore; coercive collection practices; and gender inequality as contributing to the crisis. For example, while some male clients were supportive of their wives’ use of microloans, others accused female microcredit clients of “neglecting” family duties, their silk factory jobs and Islamic law [3], thus exacerbating tensions between clerics and MFIs.
To alleviate these pressures, CGAP and EDA made three recommendations for MFIs: to better share information; to increase the loan ceiling on individual loans in order to reduce the incentive for multiple borrowing; and to reschedule loans for borrowers facing significant setbacks [3].
You may download the full report at the following URL: http://indiamicrofinance.com/wp-content/uploads/2010/08/Karnataka-Microfinance-Report-August-2010.pdf.
By Lindsey Shaughnessy, Research Associate
About Association of Karnataka Microfinance Institutions (AKMI): The Association of Karnataka Microfinance Institutions (AKMI) was founded in 2006 with the goal of promoting community development finance in rural Karnataka and elsewhere in India through dialogue, capacity building and stakeholder engagement.
About CGAP (Consultative Group to Assist the Poor): Housed at the World Bank Group, CGAP is an independent policy and research center dedicated to providing financial access for the world’s poor. CGAP is supported by approximately thirty development agencies and private foundations. Its mission is to provide market intelligence, to promote standards and to offer advisory services to governments, microfinance providers, donors and investors.
About EDA Rural Systems Private Limited (EDA): EDA, established in 1983, is a development sector consultancy, research and capacity building organization. EDA focuses on providing microfinance and livelihood services to the poorest areas of South and Southeast Asia, Central Asia and the Pacific. EDA-Rural does not report to the Microfinance Information Exchange (MIX).
[1] India Microfinance Business News, “AKMI releases report on independent study of Microfinance in Karnataka”, August 13, 2010. http://indiamicrofinance.com/akmi-report-kolar-microfinance.html
[2] MICROCAPITAL BRIEF: “Over-Indebtedness And Borrower Deliquency In The Indian State of Karnataka – A Blogger’s Observations”, June 25, 2009. https://www.microcapital.org/microcapital-story-over-indebtedness-and-borrower-delinquency-in-the-indian-state-of-karnataka-%E2%80%93-a-blogger%E2%80%99s-observations/
[3] AKMI, Competition and the Role of External Agents: the 2009 delinquency crisis in southern Karnataka, April 2010. http://indiamicrofinance.com/wp-content/uploads/2010/08/Karnataka-Microfinance-Report-August-2010.pdf
MicroCapital’s Microfinance Universe profile: Association of Karnataka Microfinance Institutions (AKMI)
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MicroCapital’s Microfinance Universe profile: EDA Rural Systems Private Limited (EDA)
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