Bryan Farris

NextThought Monday: How Can I Pay My Loans If I Can’t Afford an Onion?

Editor’s Note: The following post first appeared in Rising Pyramid and has been republished here with permission.

A few weeks ago I visited Andhra Pradesh-the very stage that has been featuring the sold-out microfinance performance of late. The drama has unfolded over the last few months, but one truth has been clear: Microfinance institutions (MFIs) have sold out.

In the music business, when an underground band with a small but loyal following tastes success and tries to cash in by going big, they are branded as sell-outs. Most of the time the bands you hear on the radio or read about in the news sold out at some point; the protagonists in this show have been no exception.

India’s microfinance crisis has been all over the news the past few months because of re-payment struggles and the controversial for-profit model. Recently, Chris eloquently gave the cliff notes of ACT I in his post, The Microcredit Tipping Point.

Whether or not you believe that MFIs selling out is a bad thing, it certainly is not clear that all of the ills cited in the debate are due to MFIs alone.

I would like to make a critique of the general plot arc thus far: not enough time has been spent on proper character development. A lot of bashing of the sell-out has occurred, while inflation seems to have been given only a cameo role in descriptions of the crisis.

Sure, one might argue that growing debts and high interest rates have lead to suicides in India and rising default rates. Perhaps you may even conclude that greed finally got the better of the MFIs.

However, the best seat in the house is often not in the audience, but rather on the stage itself. When I visited Andhra Pradesh and almost couldn’t afford a watermelon, I gained a whole new perspective on the MFI crisis.

According to The Times of India (pictured), onion prices have gone up 82.4% compared to last year, and vegetables generally have gone up 58.8%. Eggs, meat, fish, fruits, milk and minerals haven’t had it so-bad: only a whopping 20% of inflation year over year.

I’m not saying that greed had no part in the MFI crisis, surely the system needs to be reevaluated, but I want to shed some light on the very active performer that is inflation.

With prices climbing to the balcony level, how can a family barely scraping by be expected to pay off loans AND feed their family? The need to eat is a more immediate need than the need to be financially solvent and thus takes precedence.

Before I sign off, I’d like to clarify one thing-sell-outs tend to be worth what they’re paid, and more people get to enjoy their music because they went for the gold. Surely, recent MFI growth has come at a cost, but more people have access to basic financial services as a result.

There will always be fans and haters of sell-outs, just as there will always be a dispute about the validity of microfinance at scale. The question now is whether the star of the show can adapt to accommodate a new reality.

lending, microfinance