Brown University doctoral student Sohini Kar, supervised by Dr. Lina Fruzzetti, will undertake anthropological research on how microfinance institutions (MFIs) assess financial risk and its consequences for urban poor borrowers. Proponents of microfinance have argued that access to credit mitigates socio-economic disparities by incorporating the poor into more efficient markets. Paradoxically, the sustainability of MFIs requires the exclusion of those who fail to meet the risk criteria employed by bank staff. This project will investigate how borrowers and lenders of microfinance negotiate this tension between "financial inclusion" and social exclusions informed by global financial norms and locally constituted ideas of creditability.
This research will be conducted in Kolkata (formerly Calcutta), India, which was identified by the Indian government as having a significant financially excluded population, and has consequently had a rapid proliferation of MFIs. As many of the MFIs lend exclusively to women, this project will focus on women borrowers, and will pay close attention to how microfinance affects gender relations. The research objectives of this project are 1) to understand how MFIs determine their ideal borrowers, 2) how this risk assessment affects borrowers and those who are excluded, and 3) whether access to credit addresses social inequalities. The researcher will employ qualitative research methods, including participant-observation of borrower group meetings and MFI offices, interviews with key actors in the banking sector as well as women borrowers and their families, and media and policy analysis of microfinance in India.
This research is important in understanding the effects of the rapidly growing microfinance sector globally. The findings will contribute to understanding the challenges of enfolding of the poor into financial networks and its development policy implications. This research also supports the education of a social scientist.
For this research project, Brown University doctoral student in anthropology Sohini Kar, supervised by Dr. Lina Fruzzetti, conducted 12 months of fieldwork on urban microfinance in the Indian city of Kolkata (formerly Calcutta). Microfinance institutions (MFIs) in India provide small loans (around US$100-300) to women, primarily for business purposes (e.g. to start or maintain a small store). Proponents of microfinance have argued that increased access to credit will lead to economic development by providing the poor with new entrepreneurial opportunities, and that targeted lending to women will lead to empowerment. Critics of microfinance programs, however, note that increased indebtedness does not necessarily lead to a better life for many borrowers, and that women do not always retain control of the loans. Starting in late 2010, and over the course of the fieldwork period for this project, microfinance in India came under increased scrutiny by government regulators and the media due to problematic loan recovery methods by MFIs, leading to a crisis in the sector. In the context of these debates on microfinance, this project aimed to answer three related questions: 1) to identify how institutions analyze ideal borrowers (e.g. who is high/low risk?); 2) to analyze debt shapes borrowers’ lives; and 3) to analyze whether access to credit leads to development. In order to answer these questions, the researcher regularly visited microfinance group meetings from three different branch offices of a Kolkata-based MFI. These groups are the basic units of the microfinance lending method, and consist of about 10-30 women who meet once a week at a designated house. The loan officer comes to this meeting to collect weekly installments of the loan, and to follow-up on any new loan applications. During these meetings, the researcher was able to observe the proceedings of the meetings, related problems (e.g. difficulties with returning loans), and to meet and interview borrowers. Additionally, the researcher spent time at the branch offices to learn more about the day-to-day institutional operation of microfinance. Microfinance has also been part of a process that some scholars have termed "financialization," or the way in which financial markets affect the everyday lives of people. In order to understand this process, the researcher also conducted interviews with MFI management, commercial bank officers, and policymakers and regulators to understand the networks of finance in which microfinance is situated. The conclusions of this project are concisely summarized in the statement of one borrower: "The loans have spread. We need them to buy things for ourselves or pay for our children’s schooling. The end of these loans would be bad. What would happen? All would be as they were before." Many of the borrowers reflected this sentiment: the loans had become necessary for everyday consumption purposes, but they were not transformative. More specifically, first, while MFIs work to identify low-risk borrowers, they are rarely the poorest, having limited effects in terms of providing access to credit to the financially excluded. Second, for women who do have access to loans, it is more often used to meet consumption needs, rather than to start a business enterprise. Thus, credit fills an always-present income gap in the lives of the urban poor, but cannot significantly mitigate poverty. Finally, the crisis led to a tightening of credit by MFIs, highlighting the extent to which indebtedness had penetrated the lives of the urban poor of Kolkata. Without the microfinance loans, women had to find new sources of credit to pay for, among other things, education and healthcare. These findings suggest that while increased access to credit temporarily assuages consumption needs, it leads to increased indebtedness, which can have negative consequences for the borrowers, who often pay high interest rates and struggle to constantly pay back loans.
