Our paper on suicides and microfinance, researched in 2011, was recently published in Strategic Change (Ashta, Khan, & Otto, 2015). It is worthwhile to establish clearly what we found, what we learned, and distinguish this from what we didn't find, and to reiterate clearly our policy recommendations for MFIs and regulators.
The impact of the Andhra Pradesh microcredit crisis was so strong that it contributed significantly towards the global dip in microcredit outreach in 2011. The Andhra Pradesh microcredit crisis was largely started by reports in popular media that suicides were being exacerbated by microcredit lenders charging high interest rates and harassing borrowers. The resulting political instigation of non-reimbursements in some Indian States almost killed the sector.
Our research on microfinance in India investigated the relation being drawn in the media between microfinance lending and suicides amongst borrowers. We recognized that the data on microfinance borrowers is limited to the formal microfinance sector, and specifically to those institutions who choose to disclose their data. The data on suicides is fuzzy, based on reports of the National Crime Records Bureau of India and by different countries across the world (as reported to the World Health Organization). Thus, we suggest, from the outset, that our conclusions and observations be taken with appropriate reserve.
To appreciate the complexity of drawing correlations and associations, as an example, the average suicide rate in France is about 16 per 100,000 which compares unfavorably with India's suicide rate of 10 per 100,000.Such a simplistic investigation suggests that with higher microfinance proliferation in India than in France, the suicide rates are lower in countries with higher microfinance. However, this is clearly over-simplified.
Drawing from the research of Emile Durkheim in the nineteenth century, we know that the poor are likely to be less suicide prone than the rich. Divorce, women's participation in the labor force, and migration to cities, all increase with economic development. These factors all play a role in increasing the propensity to commit suicide, perhaps due to a stronger isolation of individuals and the breaking of traditional support groups such as families. At the same time, research on the Japanese experience has shown that people who are over indebted or have taken guarantees from other people are more prone to committing suicides.
Therefore, first, we checked if the 54 suicides reported by the media in October 2010 could be expected on average in a country the size of India with a billion people – where the average suicide rate is 10 per 100,000 inhabitants per year. After controlling for the population of Andhra Pradesh, an average family size of five individuals per household, each with three or four loans and the size of Self-Help Groups, we found that 54 suicides should theoretically not be the cause for unjust alert or be unilaterally blamed on an increased borrower stress due to microfinance.
Our investigation of the time series data on suicides in India revealed a slightly significant positive correlation between microfinance penetration and male suicide rates, and a slightly negative correlation (not significant) with female suicide rates – but no relation between microfinance and total suicides. Generally, no causal relationship can be assumed from these correlations.
The cross-sectional data of Indian States indicates a small positive correlation (not significant) between microfinance penetration and suicide rates. However, the correlation doubles and becomes significant when we consider total suicides with number of SHGs loans outstanding to banks. Again, no causation is suggested as both directions are plausible.
Fourth, world-wide country-wise analysis indicates that there is no correlation between microfinance and male or female suicides, yet regression analysis of 31 countries very weakly indicates that microfinance penetration among the poor is a causal factor for increased suicides.
Thus, all we can really say for now is that perhaps there is a (causal) relationship between microfinance penetration in the country and suicides. This could be due to hidden factors which depend on the economic development overall.
What we take away from our research and this debate (and furor in the media) is to clarify what we can do to alleviate borrower stress.
First, unbridled growth and a drive to increase outreach may have created an environment where each credit officer in India is serving twice as many people as credit officers globally, leading to loss of personalization. Fast growth rates also mean that a credit officer’s recruitment and training have to be rapid and may ignore softer skills required to cope with borrower stress.
Second, there is enormous pressure on credit officers who are doing their best to please the bosses who demand full repayment rates. The human consideration therefore needs to extend to this employee and his fears and frustration when the borrower does not repay.
Third, if the increase of microfinance proliferation does increases male suicides, is this impact different for women and men - possibly due to their changing roles in society? Changes in relationship roles indicated the need for social support groups for males to take in shocks now that the woman is busy and possibly even more successful.
Although more field research is required, some of our policy recommendations are listed below:
- The need for self help or other social support groups for vulnerable individuals (especially men) to better cope with the changes in the family situation being ushered in through the economic and social empowerment of women given their access to microfinance.
- The need for MFIs to be allowed to take deposits from a broader client base, beyond their own borrowers, as it is the case with leading non-bank (NGO) MFIs in Bangladesh. This would then change the relationship at the grass roots between the collection officer and the client. It would no longer be one of dominance of the field officer, but also recognition that if he wants to fulfill his deposit mobilization targets, he is dependent on the same customer.
- The need to cap microfinance loans to some percentage of the expected earnings of the household for that period. Failing this, the caps can be on GNI per capital for that period. Thus, a four month loan should have a lower cap than a one year loan, which in turn can have a lower cap than a two year loan.
- The role of a strong pro-poor regulatory environment needs to be stressed. A conducive environment is important in allowing borrowers to succeed with their business, enabling people to repay and, in turn, to make MFIs successful.
- If upper caps on interest rates are introduced, these need to be sufficiently restrictive of loan-sharking, yet enabling MFIs to survive and grow.
Ashta, Arvind, Khan, Saleh, & Otto, Philipp E. (2015). Does microfinance Cause or Reduce Suicides? Policy Recommendations for Reducing Borrower Stress. Strategic Change: Briefings in Entrepreneurial Finance, 24(2), 165–190.
May 08, 2015, 6:25 pm
It is true suicides were committed because of horrifying , inhuman practices that were followed by some MFIs not all in AP.
As a matter of fact that entire microfinance was state organized. With UNDP mou in early 90s and later MOU with world Bank ,District poverty initiative programs were taken up by state govt in all the 22 districts in AP. Almost all the eligible rural women became members of self help groups. Thus entire state microfinance has reached a saturated stage.
Seeing the huge organized self help group sector, some MFIs entered in to the sector with main aim to capitalize the vulnerable sections by luring huge lendings. As a matter of fact these were /are all poorest of poor ,not covered by regular banking channels and who need some financial support to come out of poverty or at least reduction of poverty It was not double/multiple borrowings but it was multiple lendings. The interest rates were very high. Basically before lending it is required to verify whether the prospective borrower/ group had already borrowed or not from others ? Secondly what was their repaying capacity?
Without looking into all these ethical aspects of lending , resorted to multiple lending by sanctioning huge amounts There was no definite economic activity worth to notice or mention and there was no incremental income and thus the borrowers were forced to borrow from private lender at huge exorbitant rates of interest to repay these loans. Finally at some point the vicious circle broke These MFIs /their recovery agents set aside all laid down fair practices code for debt collection, and other normal human decencies.
Thus it resulted in borrowers committing suicides. It is a different academic exercise to say whether the number of deaths were statically significant or not and how many deaths were properly reported or not. But the fact was multiple lendings by MFIs where the sector was already state organized and saturated and indiscriminate methods of adopted by some MFI were root cause for such suicides
This is not the sector for commercial activity and profit making.