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The Credibility of Microfinance Institutions - Clients´ Perception and Empowerment in Andhra Pradesh

Pauli, Markus

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The politics of microfinance is essential to an understanding both of the success and, the crises of microfinance. It has been argued that the boom of microfinance — while building on the economics of group approaches, which address problems like adverse selection and moral hazard through peer pressure and peer monitoring — cannot be explained without the ideational success of the microfinance movement, nor without the underlying state policies. In the Indian case this is both the “priority sector lending” that fuelled the fast growth of Microfinance Institutions (MFIs) and the government-supported self-help groups bank linkage program (SHG-BLP). Furthermore, three out of four Indian microfinance crises — including the major 2010 Andhra Pradesh crisis — were political not economic. Certainly, the crises also stemmed from internal management problems within the MFIs that led to problematic incentives and not enough attention given to staff and group capacity building, which in turn led to easy loans, multiple and chain loans and heavy-handed loan recovery methods. However, it is argued in the thesis that ultimately it was a state-market conflict that led to the devastating Andhra crisis, shrinking the state-wide MFI loan portfolio to a tenth and existentially threatening some of the major MFIs. As a result, it is argued that MFIs have to work more actively with the involved political stakeholders at the local, regional, state and federal levels. At the same time, they have to invest more into group building, clients´ agency and establish adequate mechanisms enabling the expression and constructive handling, of complaints and problems.

Perception — like trust and reputation — is core to the sustainable success of any bank, and even more so for Microfinance Institutions (MFIs), which operate in the inherently political arena of development. Additionally microfinance is a sector that is often poorly regulated and supervised. MFI operations do not only disrupt local vested interests (like that of moneylenders of all sorts, e.g. the agricultural input selling middlemen, businessman and ground landlords) but also local and regional political interests. Politicians perceived the fast growth of MFIs as “eating” into “their” self-help groups bank linkage program (SHG-BLP). This was seen as threatening either to the genuine success of the SHG-BLP or to the usage of the program for political purposes like vote bank fostering. There are enough influential interest groups who would be happy to cut down to size, the self-declared poverty-fighting heroes, who on top made a profit from their activities. Therefore, public perception and principally, the perception of clients are central. While this study found that allegations regarding strong-armed recollection methods are not unsubstantiated, the perception of specific MFIs differs substantially. In fact, the overall perception is unexpectedly positive — given that a major crisis occurred just three years before the survey of more than 550 individuals, designed for the purpose of this thesis, was conducted.

Empowerment is political and multidimensional and a key stated goal of microfinance initiatives. Political, in the sense that it encompasses the struggle of marginalised groups for their political, civil and social rights. Given the argumentation, that microfinance is intrinsically political and that perception determines the long-term success of any bank, MFIs will only be sustainable if their clients see themselves as stakeholders with a strong interest in the political survival of their microfinance loan provider(s). Therefore the thesis argues that MFIs should “invest” in their clients´ agency, in their capabilities to organise themselves and rectify grievances before they can be politically exploited, endangering the MFIs. The implemented multidimensional empowerment index found expectedly that male clients are more empowered than female clients. Furthermore, female clients were found to be more empowered with regard to decision-making than female non-clients. This was the hypothesized expectation, due either to the self-selection of already more empowered women or the positive impact of group-based microfinance on the role of women in the household.

Item Type: Dissertation
Supervisor: Mitra, Prof. Dr. Subrata K.
Place of Publication: Heidelberg
Date of thesis defense: 25 June 2015
Date Deposited: 24 Sep 2015 11:14
Date: 2015
Faculties / Institutes: The Faculty of Economics and Social Studies > Dean's Office of The Faculty of Economics and Social Studies
Subjects: 320 Political science
Controlled Keywords: Mikrofinanzierung, Indien
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