The Crises of Microcredit

Excerpt. © Reprinted by permission. All rights reserved. The Crises of MicrocreditBy Isabelle Guérin, Marc Labie, Jean-Michel ServetZed Books LtdCopyright © 2015 Zed BooksAll rights reserved.ISBN: 978-1-78360-375-6ContentsFigures, tables and boxes, vii, Acknowledgements, viii, Acronyms and abbreviations, ix, Introduction, i, PART I Supply, 1 Microcredit crises and unsustainable growth: a management perspective BERT D'ESPALLIER, MARC LABIE AND PHILIPPE LOUIS, 23, 2 Estimating levels of credit market saturation EMMANUELLE JAVOY AND DANIEL ROZAS, 39, 3 Microcredit crises and the absorption capacity of local economies ISABELLE GUÉRIN AND JEAN-MICHEL SERVET, 54, PART II Demand, 4 Is the demand for microcredit in rural Tamil Nadu sustainable? ISABELLE GUÉRIN, CYRIL FOUILLET, SANTOSH KUMAR, MARC ROESCH AND G. VENKATASUBRAMANIAN, 73, 5 How good repayment performances can harm borrowers: evidence from the Dominican Republic SOLÈNE MORVANT-ROUX, JOANA AFONSO, DAVIDE FORCELLA AND ISABELLE GUÉRIN, 92, 6 The social credibility of microcredit in Morocco after the default crisis SOLÈNE MORVANT-ROUX AND MARC ROESCH, 113, PART III Environment, 7 Malaise in the Senegalese microfinance landscape EVELINE BAUMANN, ABDOULAYE FALL AND CÉCILE GODFROID, 133, 8 No Pago, a social movement against microcredit institutions in Nicaragua JEAN-MICHEL SERVET, 152, 9 When microfinance collapses: development and politics in Andhra Pradesh DAVID PICHERIT, 170, Conclusion, 187, About the contributors, 199, Index, 202, CHAPTER 1MICROCREDIT CRISES AND UNSUSTAINABLE GROWTH: A MANAGEMENT PERSPECTIVEBert D'Espallier, Marc Labie and Philippe LouisIntroductionOver the last few years, several major crises have drawn the attention of the international community to the limits of microcredit and the risks the industry must be able to face. Of course, different factors play a critical part in these crises, and we need to analyse them from different perspectives, taking demand, supply and environment into account, among other things. The goal of this chapter is to improve understanding of the potential mechanisms that may contribute to the origin of supply crises. The chapter is based on a bottom-up approach. A better understanding of these sources and their consequences will be beneficial for a wide range of stakeholders such as regulators, donors and, evidently, the management of microcredit institutions (MFIs).We define a supply-side microcredit crisis as a situation in which the industry is disrupted since some MFIs are no longer able to operate properly because the MFIs themselves are having difficulties, often of a financial or operational nature. This covers supply-related problems that should be understood as the MFIs becoming unable to appropriately deliver the microcredit products and services. More specifically, we try to give an overview of the dynamic that may generate crises, focusing particularly on the issue of 'sustainable growth'. Indeed, in many of the crises observed on the ground, it appears quite clear that once the crisis is there, many people consider that it is somehow linked with the way the MFI(s) has developed and more specifically with the way it has grown. So we will try to present here a framework of analysis to discuss this issue. The remainder of this chapter is made up of six sections. The first will discuss the fundamentals of microcredit. The second will review the challenges generated by high growth and how it can represent a danger for the fundamentals presented in the previous section. The third will then discuss to what extent it is possible to identify what is 'too strong a growth'. The fourth will suggest how such excessive growth can affect MFIs. The fifth will suggest a 'preventive check list' resulting from the previous discussions and the last one will provide preliminary conclusions.Fundamentals of microcreditIn order to be able to discuss how microcredit can get into crisis dynamics, it is important to describe what the fun