Microfinance Practice: Re: [MFP] Debt relief for Cambodians & why legal aid matters

Dear group (and Chuck)

My lessons from the sector is that the regulator, government, MFIs and their sector association should work together to adequately reflect client concerns in what they do. India had a situation of somewhat reckless lending by a number of institutions during the five year period 2005-10. Even before the AP crisis arose the sector associations Sa-Dhan and MFIN were engaged in designing code of conduct for MFIs that focused on avoidance of excessive debt, non-coercive processes and reasonable pricing. There were some deviant institutions, When the AP crisis struck, RBI, the regulator stepped in and advised the MFIs to apply the industry of conduct and made regulatory space for monitoring of fair and transparent dealings with the customers. RBI also capped the rates of interest and anticipated that competition in the sector and better efficiency in operations will drive the interest rates down. While the cap ion 2011 was started at 27%, the range of interest rates today is between 18 to 25%, with median rates around 23%. These are APR rates and transparently declared. (Chuck, you remember the struggles in the first years of MFT and then after RBI regulation, the calculation of rates became a lesser problem as regulator anyway required it).

A code of conduct Assessment tool was designed and SIDBI (development financial institution) funded the assessments which scored the MFIs on how they dealt with their customers. The industry knowledge platform (Access Development Services,) through its Microfinance India initiative also commissioned a Social Performance Report annually to understand the trends across the country on the direction, use and social effects of microfinance. Use of credit bureaus to check too many loans and excessive loans in the same name is another piece in ensuring some orderly conduct.

All this has become a part of the business, and MFIs make good profits despite the major challenges that arrive from time to time. In the COVID times, Central Bank advised forbearance for offering a moratorium, created liquidity pools for MFIs to borrow from and gave time for clients to repay and MFIs to reschedule their debt to bulk lenders. For the present the immediate problems are seemingly under control, but the length of the covid crisis and how long it might take to restore normalcy in livelihoods and incomes holds the key for how much MFIs may be impacted. There is cautious optimism as livelihoods of the most vulnerable seem to restart, with adequate demand for their goods and services.

The point you make about greed and coercion going hand in hand in some economies is an important one. Both investors and more importantly, regulators should design responses that sustain the vulnerable clients - without them how will MFIs will thrive in the long term?

Best regards

srinivasan

On 28-Jun-2020, at 6:19 PM, Jami Solli jamisolli@gmail.com [MicrofinancePractice] <MicrofinancePractice@yahoogroups.com> wrote:

Dear Group,

I hope you are keeping well during the pandemic.

Sharing an article with you about the state of microcredit in Cambodia:

https://asia.nikkei.com/Politics/Hun-Sen-to-Cambodian-banks-Seize-property-if-borrowers-won-t-pay

I hope that any responsible investors in that market will instruct their investees to stop divesting the poor of their homes when they are in debt difficulty.

On a positive note, there is a legal aid organization in Cambodia LICADHO which is assisting borrowers.

All the investors should be thankful too as were LICADHO not present, it is possible you would see either borrower suicides or civil unrest or both.

Best regards,

Jami