1In 2002, an innovative project was set in motion in India: groups involving the State, future beneficiaries, NGOs and banks working together to provide the poor with small amounts of money and facilitate a project or purchase. A form of microlending. Interested in this initiative, IRD researchers began to assess it and took a look behind the scenes. By carefully examining the situation of borrowing families, they realised that all of them were already indebted, not to banks but to other family members, loan sharks, local leaders or pawnbrokers.

2This informal debt, which was completely overlooked at the time, can be significant. In the rural area studied, certain families sometimes accumulate up to 10, 20, 30 debts, i.e. a total of one to three annual salaries. When the income stream is irregular and social protection virtually non-existent, overindebtedness is therefore massive. Against this background, receiving contractual microcredit, with fixed monthly repayment terms, only weakens the most destitute populations, whose income is as irregular as it is unpredictable.

••• In developing countries, microlending makes poor, already indebted populations more vulnerable •••

Taking out microcredit, Pakistan.

3This trend is not specific to India as it can be found in numerous developing countries. Furthermore, this excessive debt has ambiguous consequences. It may be a sign of family solidarity or, on the contrary, of becoming trapped in a vicious circle likely to lead to prostitution or servitude. While fewer NGOs have partaken in microlending since then, private financial companies have taken over, partly because they realised that the poor too can be creditworthy.

4Since then, other, more promising initiatives have been monitored by IRD, such as small cooperative banks in Brazil which finance and support projects generating wealth at local level.  Watch this space…

“IRD’s research on debt, conducted in India and South Asia over a long period of time and sometimes in difficult circumstances, is exceptional insofar as it captures the unique features and reality that characterise the essence and perpetuation of household debt. In an ever-shifting landscape, research reveals hidden patterns overlooked by public interventions and weaves a superb narrative, making sense of the continuing and structural exclusion and exploitation of people through debt, as well as the ambivalence of debt and the limits of microlending policies. This is why IRD’s work is extremely important to the International Labour Organisation, in its effort to improve the effectiveness of public policies on the fight against vulnerability in the workplace.” 
Coen Kompier, International Labour Organisation, India