Blogs

I’ve been poring over the data collected by the Angelucci, Karlan & Zinman study of Compartamos clients.  To recap from my previous blog, with an average monthly loan payment of 2,100 for the loans in the study (and for Mexican MFIs generally), the figure of 1,572 pesos as the average client income poses a seemingly impossible debt-to-income ratio of 130%.   

This is part 2 of a 3-part installment from my brief visit to Mexico in October 2014.  See: parts one and three.

My latest post on the credit bubble in Mexico had one especially interesting comment. Jose Manuel asked to consider the loan sizes in the country as a factor that might explain the prevalence of multiple borrowing. The comment is highly relevant. What Jose Manuel suggests is that loans in Mexico are unusually small. And in a way, he is right. On a per capita GNI basis, Mexico's loans are smaller than in any other country. By contrast, India's loans are nearly three times larger. This has two potential implications: first, small microfinance loans put less of a burden on Mexican borrower incomes, and second, their inadequate size encourages clients to borrow from multiple lenders in order to meet their requirements. And yet, I find that both implications are incorrect and that multiple borrowing levels in Mexico continue to point to a very large bubble.

Last week, MFIN, received official recognition from the Reserve Bank of India as a Self-Regulatory Organization in charge of regulating the activities of its members. This is the first time a financial organization received such official recognition in the country. Indeed, I'm not aware of any other countries that have a similar arrangement, so this may well be a global milestone as well. This is a big deal that bodes well for the future development of the Indian microfinance sector. It also reminded me of an article co-authored by M-CRIL's Sanjay Sinha and myself back in January 2010, nearly a year before the onslought of the Andhra Pradesh crisis. MFIN had been formed just months before, and had developed a Code of Conduct that included many important features, including strong limits to multiple lending - a maximum of 3 concurrent loans or combined amount of 50,000 rupees (~€750 at the time). However, we felt that as a purely self-regulatory institution, MFIN lacked the teeth to effectively monitor its members, and we made the case for a system quite similar to the one that's just been implemented in India. I look forward to seeing it thrive and set an example for others.

Or the more things change, the more they stay the same...  Sometimes it seems as though there is no shortage of proverbs when it comes to looking at the seemingly inevitable credit business cycle. In my last blog I took a look at the unprecedented stability of the US banking sector during the 50 years following the Great Depression.