Felix Salmon

The rise of India’s moneylenders

By Felix Salmon
December 16, 2009

Ketaki Gokhale has a fascinating article on the way in which traditional high-interest moneylending has grown in India alongside microfinance, rather than being marginalized by it:

Even as the government and nonprofit organizations came together to create the Indian microfinance market in the 1990s, traditional moneylenders’ share of total rural Indian household debt grew to 29.6% from 17.5%, according to a government survey. Another recent survey by the Reserve Bank of India found that between 1995 and 2006, the number of registered traditional moneylenders increased 56% to 19,627 from 12,601. Though much harder to quantify, unlicensed lenders are believed to have made similar gains, the survey says.

Correlation is not causation, of course, and the microlenders are predictably painting the rise in moneylending as simply proving that there’s a lot of untapped demand for credit. But Gokhale has a colorable case that in fact the microlenders are parasitical on the existence of moneylenders, who allow microfinance borrowers to make payments they’d otherwise not be able to come up with. Or rather, that seems to be the belief of some group of anonymous people:

Some academic researchers believe the moneylenders are keeping afloat many microfinance groups…

Microloans have a stellar repayment rate — close to 100% — and some analysts believe a hidden reason is the stopgap provided by moneylenders.

I’d love to know who these researchers and analysts are, and I’m puzzled by the fact that none of them are named in the article. Maybe in Gokhale’s next article we could have some hyperlinks.

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