Nabila Tabassum Chowdhury > Recent Status Updates

"Abhijit’s family used to have a driver who would occasionally ask for a day’s leave. He would buy a sack of cement, a sack of sand, and a stack of bricks and would take a day off to lay some brick. His house was built over many years, 100 bricks at a time."

"Finding ways to finance medium-scale enterprises is the next big challenge for finance in developing countries. "

"This appears to be because the bank officer found it relatively more profitable to lend to the largest firms now that the bank could be sure it could collect on the asset the firm had pledged."

"Changes in the business environment,such as improvements in the functioning of courts,may well make a difference. In India,the introduction of faster court action led to much faster loan recovery, larger loans & lower interest rates.However, this is not a magic bullet, either.When the debt recovery tribunals were introduced,lending to the largest firms increased, but lending to the smaller firms actually went down."

"A 10 percent increase in loans led to an increase in profits of 9 percent, after repaying the loan."

"Unfortunately, it does not seem that more established businesses find it that much easier to get credit. In particular, they run the risk of being too large for the traditional moneylenders and microfinance agencies, but too small for the banks."

"But maybe it does not matter that microcredit is not designed to lend to larger borrowers. As we saw, credit constraints are likely to be much tighter for very poor borrowers than for somewhat richer ones. Perhaps there is a natural graduation process—start by borrowing from an MFI, grow your business, and then move on to a bank."

"Microfinance gives its clients every incentive to play it safe, so it is not well suited to discover who has an appetite for risk taking."

"The microfinance model, as we saw, is simply not well designed to put large sums of money in the hands of people who might fail. This is not an accident, nor is this due to some shortcoming in the microcredit vision. It is the necessary by-product of the rules that have allowed microcredit to lend to a large number of poor people at low interest rates."

"Opening the door to defaults, even as a way to encourage necessary risk taking, may lead to an unraveling of the social contract that allows them to keep repayment rates high and interest rates relatively low."

"Convincing people that an MFI has no future is the easiest way to make sure that it in fact does not have one—since it becomes in everyone’s best interest to default."

"Most leaders of the MFI community firmly believe that this is not the case, and that relaxing their guard on defaults could have disastrous consequences. And they may well be exactly right."

"And indeed, a study found no difference in repayment whether clients are formally under joint liability contracts or not, as long as they continue to meet regularly (when they don’t meet weekly, but instead monthly, another study found that social connections within the group do not build up as fast, and eventually default rates do creep up)."

"This gradual building of trust may be one reason many MFIs have gradually moved away from the formal requirement of joint liability."

"One way to summarize all these results is to observe that, in many ways, the focus on “zero default” that characterizes most MFIs is too stringent for many potential borrowers. In particular, there is a clear tension between the spirit of microcredit and true entrepreneurship, which is usually associated with taking risks and, no doubt, occasionally failing."

"When they compared the clients who got to repay later to those who stayed on the standard repayment schedule, they found that the former were more likely to start riskier and larger businesses, for example, buying a sewing machine instead of just buying some saris to resell.15 This presumably means that, down the line, they would be able to make more money."

"Rohini Pande and Erica Field persuaded an Indian MFI, the Kolkata-based Village Welfare Society, to allow a randomly chosen set of clients to start their prescribed repayments two months after they got the loan, instead of one week."

"Joint liability works against those who want to take risks: As a group member you always want all other group members to play it as safe as possible."

"The rigidity and specificity of the standard microcredit model mean, for one thing, that since group members are responsible for each other, women who don’t enjoy poking into other people’s business don’t want to join. Group members may be reluctant to include those they don’t know well in their groups, which must discriminate against newcomers."

"Trapped by decades of overpromising, many of the leading players in the microfinance world have apparently decided they would rather rely on the power of denial than take stock, regroup, and admit that microfinance is only one of the possible arrows in the fight against poverty."

"in our minds, microcredit has earned its rightful place as one of the key instruments in the fight against poverty."

"As economists, we were quite pleased with these results: The main objective of microfinance seemed to have been achieved. It was not miraculous, but it was working. There needed to be more studies to make sure that this was not some fluke, and it would be important to see how things panned out in the long run, but so far, so good."

"On the other hand, there was no sign of a radical transformation."

"There was no clear evidence of the reckless spending that some observers feared would happen."

"People in the Spandana neighborhoods were more likely to have started a business and more likely to have purchased large durable goods, such as bicycles, refrigerators, or televisions. Households that did not start a new business were consuming more in these neighborhoods, but those who had started a new business were actually consuming less, tightening their belts to make the most of the new opportunity."

"When we compared the households in these two sets of neighborhoods, some fifteen to eighteen months after Spandana started lending, there was clear evidence that microfinance was working."

"Whether they are buying machines, utensils, or a television for their home, the important difference is that they are working toward a vision of a life that they want, by saving and scrounging and working extra hard when needed, rather than simply drifting along."

"Reddy describes the potential benefits modestly. For her, access to microfinance is important because it gives the poor a way to map out the future in a way that was not possible for them before, and this is the first step toward a better life."

"By which they meant that as long as the clients came back for more, microcredit had to be beneficial to them. And because MFIs are financially sustainable, and do not depend on the generosity of donors, evaluating exactly how beneficial they are is unnecessary. This is a bit disingenuous."

"When we approached MFIs (starting around 2002) to propose to work together on an evaluation, their usual reaction was, “Why do we need to be evaluated any more than an apple seller does?”"