Comments on: Multiple borrowing or multiple lending – who is to blame for debt fatigue? http://microfinance.cgap.org/2009/08/28/multiple-borrowing-or-multiple-lending-%e2%80%93-who-is-to-blame-for-debt-fatigue/ Advancing financial access for the world's poor. Fri, 10 Sep 2010 19:20:35 +0000 http://wordpress.org/?v=2.7.1 hourly 1 By: Greg Roberts http://microfinance.cgap.org/2009/08/28/multiple-borrowing-or-multiple-lending-%e2%80%93-who-is-to-blame-for-debt-fatigue/comment-page-1/#comment-768 Greg Roberts Wed, 16 Jun 2010 07:52:49 +0000 http://microfinance.cgap.org/?p=573#comment-768 I have been watching the mico loan evolution from the US and I think it is an amazing business that helps all involved. Like any other business that is brand new there will be bumps in the road. I have been watching the mico loan evolution from the US and I think it is an amazing business that helps all involved. Like any other business that is brand new there will be bumps in the road.

]]> By: Raunak Kapoor, Spandana Sphoorthy Financial Ltd. http://microfinance.cgap.org/2009/08/28/multiple-borrowing-or-multiple-lending-%e2%80%93-who-is-to-blame-for-debt-fatigue/comment-page-1/#comment-593 Raunak Kapoor, Spandana Sphoorthy Financial Ltd. Thu, 18 Mar 2010 19:46:33 +0000 http://microfinance.cgap.org/?p=573#comment-593 I dont see this industry to sink in near future but the symptoms definately indicate towards a dip. Problems like Karnataka are a learning experience for all the MFIs but such small pockets are bound to develop all over India in current scenario of multiple lending across all states. The industry will take a toll when default rates start escalating in many such pockets all over India. Such large scale default would be a blessing in disguise for the sector as a whole. It will lead to small players being flushed out of the market. There would be a collaborative efforts on part of remaining players to come out of this hole which will lead to infusion of technology and change in approach of many of the MFIs. The long standing demand of regularising industry will also take a concrete shape specially after huge losses of public money. But all this will happen only when this industry undergoes a major problem of rising default in near future. so lets hope that such a phase comes very soon and industry gets regularised like the commercial banking industry. I dont see this industry to sink in near future but the symptoms definately indicate towards a dip. Problems like Karnataka are a learning experience for all the MFIs but such small pockets are bound to develop all over India in current scenario of multiple lending across all states. The industry will take a toll when default rates start escalating in many such pockets all over India. Such large scale default would be a blessing in disguise for the sector as a whole. It will lead to small players being flushed out of the market. There would be a collaborative efforts on part of remaining players to come out of this hole which will lead to infusion of technology and change in approach of many of the MFIs. The long standing demand of regularising industry will also take a concrete shape specially after huge losses of public money. But all this will happen only when this industry undergoes a major problem of rising default in near future. so lets hope that such a phase comes very soon and industry gets regularised like the commercial banking industry.

]]> By: N.Srinivasan http://microfinance.cgap.org/2009/08/28/multiple-borrowing-or-multiple-lending-%e2%80%93-who-is-to-blame-for-debt-fatigue/comment-page-1/#comment-377 N.Srinivasan Wed, 02 Dec 2009 13:02:04 +0000 http://microfinance.cgap.org/?p=573#comment-377 If MFIs have a competition code and make analysis borrower's debt servicing capacity and measurement of debt levels mandatory before arriving credit decisions, many of these problems can be prevented. We want to prevent excessive debt; not multiple sources of borrowing. If MFIs have a competition code and make analysis borrower’s debt servicing capacity and measurement of debt levels mandatory before arriving credit decisions, many of these problems can be prevented. We want to prevent excessive debt; not multiple sources of borrowing.

]]> By: Opinion : Is There a Microfinance Bubble in South India? | Microfinance News http://microfinance.cgap.org/2009/08/28/multiple-borrowing-or-multiple-lending-%e2%80%93-who-is-to-blame-for-debt-fatigue/comment-page-1/#comment-352 Opinion : Is There a Microfinance Bubble in South India? | Microfinance News Tue, 17 Nov 2009 08:58:55 +0000 http://microfinance.cgap.org/?p=573#comment-352 [...] of multiple borrowers grows beyond these stand-out individuals – just a few months ago on the CGAP blog, N. Srinivasan stated that 25% of borrowers in urban and peri-urban areas  have 5+ loans, while 3 [...] [...] of multiple borrowers grows beyond these stand-out individuals – just a few months ago on the CGAP blog, N. Srinivasan stated that 25% of borrowers in urban and peri-urban areas  have 5+ loans, while 3 [...]

]]> By: ruski http://microfinance.cgap.org/2009/08/28/multiple-borrowing-or-multiple-lending-%e2%80%93-who-is-to-blame-for-debt-fatigue/comment-page-1/#comment-349 ruski Sun, 15 Nov 2009 19:03:38 +0000 http://microfinance.cgap.org/?p=573#comment-349 I must say that the writeup of N.Srinivasan is a very interesting and a good food for thought. Infact it is of great help to me since I am working on a project on Multiple lending. Even I have certain views on this.I think that the poor go to multiple souces as no MFI gives them a huge amount of credit.Moreover, the who would not want to take as much money as he gets. According to me, its the responsibility of the MFIs to collect the information on creditworthiness of the customers. Due to the rising competition and the many new MFIs which are coming up, everyone is interested in being better than the others. But they forget that by multiple lending they are creating future problems. MFIs which work in common area should try to share information about the customers to safeguard their benefits as well as to help the other MFIs. I do agree with v.Rengarajan that these problems of Multi lending are due to unethical practices.But its not only one sided. It is from MFI side by giving loans without proper investigation for fulfilling the high targets. And from the customer side by hiding the fact that they have already taken loans from any other MFI. But these things wont stop.Rather this is going to magnify day by day. So the MFIs should try to be more cautious as it is a question about their profitability and sustainability as well. I must say that the writeup of N.Srinivasan is a very interesting and a good food for thought. Infact it is of great help to me since I am working on a project on Multiple lending.
Even I have certain views on this.I think that the poor go to multiple souces as no MFI gives them a huge amount of credit.Moreover, the who would not want to take as much money as he gets.
According to me, its the responsibility of the MFIs to collect the information on creditworthiness of the customers. Due to the rising competition and the many new MFIs which are coming up, everyone is interested in being better than the others. But they forget that by multiple lending they are creating future problems.
MFIs which work in common area should try to share information about the customers to safeguard their benefits as well as to help the other MFIs.
I do agree with v.Rengarajan that these problems of Multi lending are due to unethical practices.But its not only one sided. It is from MFI side by giving loans without proper investigation for fulfilling the high targets. And from the customer side by hiding the fact that they have already taken loans from any other MFI.
But these things wont stop.Rather this is going to magnify day by day.
So the MFIs should try to be more cautious as it is a question about their profitability and sustainability as well.

]]> By: N.Srinivasan http://microfinance.cgap.org/2009/08/28/multiple-borrowing-or-multiple-lending-%e2%80%93-who-is-to-blame-for-debt-fatigue/comment-page-1/#comment-280 N.Srinivasan Fri, 25 Sep 2009 17:34:19 +0000 http://microfinance.cgap.org/?p=573#comment-280 Subrata Gupta's argument for regulation is compelling. His view that multiple lending is not accidental, but knowingly done is also to be reckoned. The MFIs at least in Karnataka, did seem to appreciate both these points and are doing something about it. But whether it would completely address the problems of overcrowding - we have to wait for some time and watch the developments, While self regulation at sector level could restrain unfair practices, risk management policies, competition policy and credit decisions are internal to institutions. Because the competitor is doing something wrong, I also need not feel compelled to do the same! Subrata Gupta’s argument for regulation is compelling. His view that multiple lending is not accidental, but knowingly done is also to be reckoned. The MFIs at least in Karnataka, did seem to appreciate both these points and are doing something about it. But whether it would completely address the problems of overcrowding - we have to wait for some time and watch the developments,
While self regulation at sector level could restrain unfair practices, risk management policies, competition policy and credit decisions are internal to institutions. Because the competitor is doing something wrong, I also need not feel compelled to do the same!

]]> By: Subrata Gupta http://microfinance.cgap.org/2009/08/28/multiple-borrowing-or-multiple-lending-%e2%80%93-who-is-to-blame-for-debt-fatigue/comment-page-1/#comment-278 Subrata Gupta Wed, 23 Sep 2009 04:31:58 +0000 http://microfinance.cgap.org/?p=573#comment-278 A nice write-up but I do have a few comments to make which are as follows: First of all let me make it clear that I am neither in favour of MFI nor against. I just want poor to be helped and in this regard many MFIs are doing great job in terms of making money available. However the question of multiple financing raises a question - Why should a person go to multiple lenders at the first place? Is it because each of them singularly do not consider him credit worthy or is it because any one of them is not in a position to meet the credit need? Or is it because there are too many chasing the same piece of cake? I have a strong feeling that out of the three the first and the third reasons are true. After all what would be the total credit requirement of such individuals in rural areas? If MFIs are making credit available at the doorstep, then there is no problem in taking from one. However if more MFIs make it available at the doorstep that could create problems of multiple financing leading to debt fatigue, which incidentally is happening in many cases, then the signals should be taken seriously. As I was told by a friend of mine, possible solution lies probably in restricting the competition among MFIs by taking a leaf out of the TRAI model wherein you have only 3-4 operators in each circle. It is probably then that proper information sharing would be possible. There would be questions of takeover, etc., in such cases but the same could be worked out by laying down transparent rules and regulations. It is also observed that many of the MFIs rather than going in for spatial increase in the market, are relying on groups formed by the banks earlier and are giving them credit. In such cases they know very well that there will be double financing. If we knowingly do what is not supposed to be done just for the sake of growth, consequences could be disastrous. It is true that the quantum at present is small and nothing like subprime crisis but are we not going the same way in terms of lending? Why do we have to reinvent the wheel even in a smaller scale? Moreover, how long did it take for the subprime crisis to erupt after showing its first signs? Not long. May be this would not reach the size of housing bubble but if it happens, it would hurt quite a few including banks who have lent to MFIs. And the result of such an event is very well known to us. Probably its time to have a level of self regulation and code of conduct mutually agreed upon by the MFIs to prevent such a thing from happening. A nice write-up but I do have a few comments to make which are as follows:

First of all let me make it clear that I am neither in favour of MFI nor against. I just want poor to be helped and in this regard many MFIs are doing great job in terms of making money available. However the question of multiple financing raises a question - Why should a person go to multiple lenders at the first place? Is it because each of them singularly do not consider him credit worthy or is it because any one of them is not in a position to meet the credit need? Or is it because there are too many chasing the same piece of cake? I have a strong feeling that out of the three the first and the third reasons are true. After all what would be the total credit requirement of such individuals in rural areas? If MFIs are making credit available at the doorstep, then there is no problem in taking from one. However if more MFIs make it available at the doorstep that could create problems of multiple financing leading to debt fatigue, which incidentally is happening in many cases, then the signals should be taken seriously.

As I was told by a friend of mine, possible solution lies probably in restricting the competition among MFIs by taking a leaf out of the TRAI model wherein you have only 3-4 operators in each circle. It is probably then that proper information sharing would be possible. There would be questions of takeover, etc., in such cases but the same could be worked out by laying down transparent rules and regulations.

It is also observed that many of the MFIs rather than going in for spatial increase in the market, are relying on groups formed by the banks earlier and are giving them credit. In such cases they know very well that there will be double financing. If we knowingly do what is not supposed to be done just for the sake of growth, consequences could be disastrous.

It is true that the quantum at present is small and nothing like subprime crisis but are we not going the same way in terms of lending? Why do we have to reinvent the wheel even in a smaller scale? Moreover, how long did it take for the subprime crisis to erupt after showing its first signs? Not long. May be this would not reach the size of housing bubble but if it happens, it would hurt quite a few including banks who have lent to MFIs. And the result of such an event is very well known to us.
Probably its time to have a level of self regulation and code of conduct mutually agreed upon by the MFIs to prevent such a thing from happening.

]]> By: sivasankar.S http://microfinance.cgap.org/2009/08/28/multiple-borrowing-or-multiple-lending-%e2%80%93-who-is-to-blame-for-debt-fatigue/comment-page-1/#comment-269 sivasankar.S Thu, 17 Sep 2009 10:10:37 +0000 http://microfinance.cgap.org/?p=573#comment-269 Now days multipile lending common.the MFIs do the mistakes for theire owen bussines purpose.not for poverty allivation.they increase the profit so lend overfinance to brrowers.more ngos and mfis in same place why they didnt go to remote areas/grassroote level they are not ready to face a risk.so operation area one common place we have duplication of brrowers so its leeds to Multiple browings. we have over due problems.better we make association between MFIs and select the areas. Now days multipile lending common.the MFIs do the mistakes for theire owen bussines purpose.not for poverty allivation.they increase the profit so lend overfinance to brrowers.more ngos and mfis in same place why they didnt go to remote areas/grassroote level they are not ready to face a risk.so operation area one common place we have duplication of brrowers so its leeds to Multiple browings. we have over due problems.better we make association between MFIs and select the areas.

]]> By: N.Srinivasan http://microfinance.cgap.org/2009/08/28/multiple-borrowing-or-multiple-lending-%e2%80%93-who-is-to-blame-for-debt-fatigue/comment-page-1/#comment-267 N.Srinivasan Thu, 10 Sep 2009 15:56:51 +0000 http://microfinance.cgap.org/?p=573#comment-267 Ashely's point is a valid one. The aspirational loan size is not met by most MFIs. when multiple lenders come in the borrower gets more than what is required. Then there is no more incentive to keep payments up. In multiple lending this is the danger, unless the MFIs know the client very well. But if they knew the borrower well, then he would not have been allowed to shop elsewhere for his credit needs. Underfinancing and easy availability of other MFI sources put together have the potential to create a negative mindset in even a good client Ashely’s point is a valid one. The aspirational loan size is not met by most MFIs. when multiple lenders come in the borrower gets more than what is required. Then there is no more incentive to keep payments up. In multiple lending this is the danger, unless the MFIs know the client very well. But if they knew the borrower well, then he would not have been allowed to shop elsewhere for his credit needs. Underfinancing and easy availability of other MFI sources put together have the potential to create a negative mindset in even a good client

]]> By: Ashley Alred http://microfinance.cgap.org/2009/08/28/multiple-borrowing-or-multiple-lending-%e2%80%93-who-is-to-blame-for-debt-fatigue/comment-page-1/#comment-263 Ashley Alred Thu, 10 Sep 2009 07:02:08 +0000 http://microfinance.cgap.org/?p=573#comment-263 Economic support to the poor and their uplift should be the main primary object. Liquidity could impact the ability of MFIs to refinance their clients, leading to a rise in the current default rate. More than social collateral, access to future loans is the incentive for clients to re-pay current loans. If this future access to credit is jeopardized, due to the liquidity crunch, re-payment rates will fall. For lenders in itself the lack of liquidity is not a risk. Economic support to the poor and their uplift should be the main primary object. Liquidity could impact the ability of MFIs to refinance their clients, leading to a rise in the current default rate. More than social collateral, access to future loans is the incentive for clients to re-pay current loans. If this future access to credit is jeopardized, due to the liquidity crunch, re-payment rates will fall. For lenders in itself the lack of liquidity is not a risk.

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