MFI (Microfinance Institutes) Borrowers: Their Loans and Repayments – A Study in Ramanagaram, India

Abstract

The Indian Microfinance Institutes (MFI) Crisis has spawned several debates on the MFI movement. However, the clients’ perspectives are sorely missing. Using the financial diary methodology with 90 poor households in Ramanagaram, Karnataka, India, we analyze how the daily household cash flows get impacted with or without MFI loans. This methodology enables us to track the uses to which these loans are put, and we show that these loans are being used either for consumption smoothing or for recycling other debt. In the 11 month study period there was also an informal call for a ban on the MFI repayments, thereby bringing in a rare chance of collecting data from the same households with and without MFI loan repayment burdens. An analysis of their expenditure points to the genesis of the crisis - the loans were more a burden than help; several houses were indebted to multiple MFIs and their only focus was to repay the loans. Using Principal Component Analysis, we identify the primary variables that affect the expenses and conclude that the loan repayment often happened at the expense of food items. We believe our study to be unique in the sense that we look at the borrowers’ perspective with or without repayment burdens, and it shows that the microfinance movement in India still has a long way to go in being truly “bottom-up”.