The Andhra Pradesh Microfinance Crisis and American Payday Loans : A Comparative Ethical Study

Microcredit, a non-profit lending approach that is often championed as a source of women's inclusion and empowerment, has in the past decade been followed by microfinance, a for-profit sibling of a different temperament. Microfinance in India is now in turmoil, precipitated by legislation in the state of Andhra Pradesh that has encouraged withholding of payment that has frozen the market. This presentation surveys the crisis up to the date of the IDEA conference, and suggests why it reached such a state. The crisis has structural parallels to the global financial crisis of 2008: both arose through lending practices that presented misalignments among the interests of lending agents, and both led to a bubble in the valuation of a market that burst when the borrowers could no longer pay. In the case of Andhra Pradesh, the market lies in the ability of poor women to sustain debt, which now averages over a year's family income spread across ten concurrent loans. The problem is not unique: Microfinance is beginning to show its kinship to exploitative lending practices that have developed in the global north over the past two decades