David Roodman, a scholar at the Center for Global Development has been studying Microfinance for a while now. His work on loan repayment at the Grameen Bank has been an excellent, transparent source where any interested reader can see the latest finding and writing in the much-balleyhooed microfinance business model.
His latest writing on Grameen Bank, ten days or so ago brings good news. He writes that as of the May report from the series of monthly indicator that Grameen Bank publishes, the non-recovery rate on outstanding loans each month has fallen from 3.85% in February to 2.89% in May. That is to say that more people are repaying their loans than ever before.
In the interest of easier and more detailed comprehension I’ll quote Mr. Roodman at length and ask that the interested reader pore through the visual tool that he provides to ‘see’ the numbers:
“One development pops out: the two key indicators of repayment have improved at record rates since my post. One of these is the non-recovery rate, the share of payments due in a month that are not paid. It fell from 3.45% in February to 2.89% in May, the steepest 3-month drop in the available recorded history save for what looks like a data glitch in 2002. The other metric is the PAR 30 (portfolio at risk, 30 days), which is the share of outstanding amounts that are owed by people at least a month behind on payments. The PAR 30 plunged more than 1% in the last two months also a record:
Before blowing the trumpet on a brand new day, he suggests caution in taking these number to the proverbial bank:
“One can view this apparent good news with acceptance or suspicion. I do want to be fair to Grameen and avoid automatically accepting the bad news that it discloses to the world, with commendable and unusual transparency, while automatically doubting any good news. It is possible that the effects of the financial crisis are easing in Bangladesh, or that Grameen’s thousands of hard-working employees have, with success, redoubled efforts to collect on loans.”
Finally Roodman suggests that Grameen Bank could still have other tricks up its sleeve to clear up its non-recovery rate. He goes on to suggest that above all, Grameen Bank needs to be transparent about how it computes its numbers on loan delinquency.
I’ve previously written on microfinance in Bangladesh. Micro-finance as a business model has sharper edges than most media outlets are given to appreciate. As a source of financing it does a tremendous job; the questions cut in when one begins to think seriously about interest rates at repayment and managerial capacity of both lenders and borrowers. Nevertheless, if the Grameen Bank numbers bear out over time, then this development will have provided cause for quiet celebration.
