Milford Bateman's Review of An Idea Which Went Wrong: Commercial Microfinance in India

----- Forwarded Message -----
From: milford bateman <milfordbateman@yahoo.com>
To: "MicrofinancePractice@yahoogroups.com" <MicrofinancePractice@yahoogroups.com>
Sent: Monday, August 11, 2014 12:13 PM
Subject: Re: Brilliant updated book on microfinance in India

 

New book just out

 

An idea which went wrong: Commercial microfinance in India

By Ramesh S Arunachalam

ISBN-13: 978-1494792480

ISBN-10: 1494792486

Available at www.amazon.com and elsewhere after August 22nd.

 

Anyone wanting to really understand what happened to the microfinance sector in the Indian state of Andhra Pradesh (AP) a few years ago, and why, needs to get hold of this extensively revised, shortened and very usefully updated book by India’s leading microfinance analyst, Ramesh Arunachalam. Thanks to amazing detail, forensic analysis, a brave willingness to name names, and an independent mind, Arunachalam’s latest book is a masterpiece in explaining one of the most important of the growing number of ‘boom-to-bust’ episodes that mark out what many, including myself, see as the final chapter in the history of the now discredited and rapidly collapsing commercialised microfinance model. To be honest, I think it’s the only book you need on the hugely important AP crisis.

 

Arunachalam achieves several important things. First, he shows that beyond a doubt one word explains the main driving force behind the dramatic rise and then equally dramatic fall of the commercialised microfinance sector in AP - greed. Greed on the part of the CEOs of the ‘big six’ MFIs, greed on the part of the consultants and advisors egging on the sector to new unsustainable heights, greed on the part of the MIV’s all registered in low tax locations, and greed on the part of the many so-called ‘independent’ Directors of some of the largest MFI’s (including even Harvard Professors no less) who should have raised the alarm but were too busy quietly cashing their cheques and selling their share options. Anyone who genuinely thought, or incredibly still thinks, that microfinance in AP had anything whatsoever to do with ‘poverty reduction’ just needs to go through this book to see what really motivated all of those most intimately involved. The detail at times is quite shocking, with Arunachalam exposing AP's microfinance sector to be nothing more than India's own version of the vastly unethical and criminal financial elite that disastrously congealed on Wall Street and in the city of London in the run up to the events of 2008.

 

Importantly, Arunachalam’s book also firmly consigns to the dustbin the always ludicrous idea that it was the AP government that brought about the AP crisis in 2010. This thesis has been debunked by the facts so many times it can now be officially classified as another of what Australian economist John Quiggin calls a ‘Zombie idea’ - an idea that no matter how many times it gets killed by the facts and reality, it nevertheless continues to rise from the dead before proceeding to lumber forward creating yet more damage in its rotten wake. Pushing this Zombie idea in the past have been some of the current and former CEOs of the leading MFIs in AP, but also some investment companies, a number of US-based academics-cum-supporters of microfinance, and even the current governor the RBI in India, Raghuram Rajan. While, yes, regulatory failures were apparent in AP prior to 2010, as Arunachalam shows, a much bigger issue that had to be dealt with, btu was totally ignored, was the raft of dirty tricks the microfinance industry deployed to keep the regulators from spoiling their party. Arunachalam shows that the AP government was actually a victim in the 2010 crisis and it was hoodwinked almost as much as so many in the wider financial sector in India and just about everyone in the global microfinance movement.

 

Finally, Arunachalam also usefully comments on the future of microfinance in India and his worry that so many of those who played a role in bringing about the AP disaster are now back on the scene, obtaining new important positions and appointing each other to new positions, and generally talking up their supposed ‘passion’ and ‘deep concern’ for the very latest entirely empty concept promoted by an increasingly desperate microfinance industry - ‘financial inclusion'. Arunachalam’s last comments are thus on what he thinks needs to be done to avoid another AP crisis and to return the microfinance model to what he calls its original purpose – serving the poor recipients of microfinance, not the usually already very wealthy providers. 

 

Note also that this latest edition is not nearly as massive as Arunachalam's first book on this topic - known affectionately by some as 'the building block' - so you can actually read it quite easily while having a coffee and without serious risk of physical injury!

Milford Bateman