Microfinance Focus, December 9, 2011: Analysing the Indian microfinance crisis, M-CRIL in its Microfiance Review 2011 says that while the number of MFI loans is just over 100% of the number of eligible financially excluded families, SHG loans are actually 310% of that number.

More importantly, to the extent that microfinance loans are not evenly distributed this means that there will be a significant number of financially excluded families in AP that have as many as 7‐8 loans at one time and a number of these are SHG loans.

The report raises the question whether it is SHG rather than MFI lending that is responsible for multiple lending and the crisis.

The analysis reveals that even if debt were distributed equally amongst all eligible families in AP there would be over‐indebtedness to the extent of 9% of the average income for such families – assuming that 40% is the maximum reasonable debt servicing capacity at the average level of income for financially excluded families. At lower assumed levels of debt servicing capacity, the level of over‐indebtedness is higher.

Excessive lending by MFIs in Andhra Pradesh and coercive behaviour by their staff in collecting repayments from over‐indebted borrowers were the apparent reasons behind the promulgation of AP Microfinance Ordinance by the State Government in October last year.