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Microfinance

Battling a Wicked Problem

Series:

Arvind Ashta

A school of thought hails microcredit as a social innovation, a messiah to enable people to help themselves out of poverty through entrepreneurship. An opposing school of thought considers microcredit as a capitalist demon ensnaring the poor in poverty and debt. The layman and the million professionals working in this industry are at a loss to make sense of the stories that circulate about microcredit. This book provides this sense-making, useful for students, professionals, investors and researchers who are attracted to this field.

Poverty is a wicked problem, akin to Hydra, the Greek mythological monster with many heads. As microcredit tries to balance multiple objectives to grapple with these multiple heads, it has needed to shift the weapons it uses. The arsenal for this battle has needed new philosophies, changing ethics, differing missions, institutional partnerships, the latest technologies and new products. These rapid innovations have differed in speed across the world, with adaptations in developed and developing countries. This book presents these with many case studies and field research.

It is clear that development initiatives, no matter how financial, cross academic disciplines. At the very least, they affect disciplines such as economics, business management, sociology, history, geography, politics, legal systems in place, as well as science, which is evolving at such a high speed. The book provides this multidisciplinary view and motivates future research and practices.

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Chapter 4. Other Micro Products and Services to Attack the Problem

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CHAPTER 4

Other Micro Products and Services to Attack the Problem

The wicked problem of the poverty “Hydra” has multiple heads. Perhaps microcredit is attacking only one of the heads. Hacking this head leads to new problem-heads developing. Conceivably, we need to see if we can attack the monster with a number of innovative tools simultaneously and destroy all the heads. In this chapter, we look at the extension of my research from purely microcredit, situated in this aspect of the proposed solution.

For those who have been following this journey into microfinance research from the beginning, at one point I mentioned a paper on suicides in microfinance (Ashta et al., 2015e) that took some time to publish, although the research was done in early 2011, as the Andhra Pradesh crisis was unfolding. Our statistical results were strange to say the least, but we all know that “significance” in statistical results assumes that the underlying distribution is normal. Irrespective of the results, we agreed that there is a problem of stress with microfinance borrowers. We also speculated that stressed credit agents, who were aiming at 100 percent collection rates, pushed this stress on to the borrowers. I personally think that this, in turn, responds to the situation of the MFIs who could be financially stressed as they try to grow beyond their sustainable growth rates. These sustainable growth rates are determined by profitability, productivity, leverage and reserves (Ashta, 2008, Higgins, 1977)...

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