This recent article related to India’s developmental woes paints a misleading and potentially harmful representation of microcredit for a general audience, many of whom will never visit India or see the regions that are reported on. As a newspaper that certainly shapes the way the American public sees the rest of the world, the New York Times has a responsibility to do better.
First off, it fails to explicitly specify which one of the socioeconomically disparate Indian states is suffering from this crisis: it could be Jharkhand with its roughly 50% of the population below the poverty line. Or perhaps it’s Tamil Nadu, coming in at around a much lower 25%. Andhra Pradesh is gleaned from the captions and quotes but is never named. This matters, not only in terms of the number of people affected by this crisis but also in terms of the geographic scale and cultural nature of the problem. There must be something more to the concept that politicians, known for being embroiled in endemic corruption, have the clout to lead borrowers to default on their loans.
More importantly, it does not present details of the usual microcredit alternatives, which are usually local loan sharks who extort even higher and more variable interest rates (48% annually is the figure I was given for rural Maharashtra). The figure for microcredit interest quoted by the article was 24%, still on the high end of microcredit but is still only half of that offered by rural moneylenders. These loan sharks or rural moneylenders are the reason that microcredit from established banks is so attractive to the average smallholder farmer. In addition, defaulted loans from rural moneylenders likely have much higher numbers of suicides, of farmers who borrow against the next harvest and have no way of formally and legally negotiating a new payment plan.
Furthermore, this article does not balance its reporting with areas in India where microcredit has been managed responsibly and successfully. In villages near Pune in Maharashtra, women’s Self Help Groups (SHGs) have translated to new homes and businesses, college educations for children from illiterate families, and a greater sense of independence, dignity, and pride among women, all with a 98% rate of repayment. “Managing microcredit responsibly” means making sure, as a lender or facilitator, that your borrower has the means, discipline, and proven record to repay a loan. In the case of Self Help Groups, women must first contribute a fixed amount of money (10-50 rupees) to a central fund, weekly. If this is done successfully for six months with verified registers and with successful repayment of small loans taken in the meantime, the women of this group can then approach a nongovernmental intermediary and a bank about matching the amount they have raised. When the group is brought to a close, the central fund, which has grown with interest from short term loans, is then distributed evenly among the women. These women are the beneficiaries of responsible microcredit, and the abundance of businesses owned by women in Rajgurunagar is a testament to the ability of microcredit to allow people to raise themselves out of poverty.
These are the kinds of stories and examples I wish were published alongside the predominantly negative news about a country of a billion people and a thousand social categories. Otherwise, the work of these journalists is nothing but sensationalism and unfairly harms the confidence of the developed world in the efficacy of microcredit. The consequences of poor public opinion can be disastrous for the success of future microcredit projects in impoverished regions that could benefit greatly from it.
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