Microcredit crisis in India: Small loans, big debt

Long regarded microcredit as a good means of combating poverty. But in Indian slums, a very sought-after clientele has become of the non-credit worthy, who has no problem getting many loans simultaneously. Now threaten debt spirals.

The street where Kiranwati their small kiosk operates is typical of the slum Mangolpuri in the northwest of the Indian capital Delhi. Side by side is the left and right, the self-built houses, in the middle of the puddles of rain last form a muddy home to countless flies. In between, children play with marbles, a shepherd drives his flock of goats through the middle of the district. From the main road fro the honking of midday traffic enters the small streets and mingles with the smell of city smog, urine, and musty clothing.

Kiranwati sold in her shop as she calls the kiosk, the little things that treat the neighbors if they have extra time earned a few rupees: Potato chips in 50-gram bags, candy and chewing gum to purchase individually for each Rupee, or about 1.6 cents each. Shampoo and shower gel stuck in tiny single-use packaging, which is welded together in colorful chains in Kiranwatis display as garlands for a celebration.

Its lineup of “so great” is said Kiranwati, have them to thank for Basix. The organization is one of about ten micro-lenders who is competing for business in Mangolpuri. Basix has Kiranwati 10,000 rupees (about 162 euros) borrowed by the pattern of Nobel Peace Prize winner Muhammad Yunus: Small loans for investments in small businesses should enable the poor who otherwise have no access to banking services, the ability to realize their ideas, money deserve to live a better life.

But in Indian slums as Mangolpuri model is run for some time out of hand: The rapid growth of the micro-lender works primarily through mass, and so the agents of many competing institutions are under increasing pressure, foisting their poor clientele still more money – sometimes regardless of how much debt the customer has outstanding even at competitors. , A highly sought-after clientele is at least in the urban slums, become of the former credit unworthy.

In many places, it is easily possible for them to borrow money from a microcredit provider to pay the outstanding installments at the next. This can lead to debt spirals out of which so many no other way out known as an escape or suicide. Most recently done in the state of Andhra Pradesh, the main market for microcredit. There, dozens of desperate slum dwellers took their own lives – what a credit crisis throughout the state brought the ball rolling (see: Microfinance in India: Crisis of the poor-banks).

With an estimate of how big is the risk that the crisis in Andhra Pradesh spreads to the whole of India, to experts find it difficult. “What we see in Andhra Pradesh, is nothing less than the bursting of a credit bubble. So to speak, the next subprime crisis, “says Ramesh S. Arunachalam, who has worked as an independent consultant for the microcredit industry. “In the countryside, the situation is but not as extreme as in the cities,” he says. “And North India is also hard to compare with the South. Delhi is not Hyderabad. ”

Outstanding loans at two, three and more companies

Suicide stories are at the slum Mangolpuri in North Delhi actually not. But here it is commonplace that borrowers take out loans in multiple organizations simultaneously. The kiosk owner Kiranwati about debt is not only offered Basix but has accepted a second credit of the company Share microfinance. Also, most of their neighbors can list off the cuff, two, three or more companies in which they currently have outstanding microloans or at least had in the past.