Microcredit Misallocation?

Critically examining the prevalent belief that microcredit alleviates poverty and enhances borrowers' self-esteem, Microcredit Misallocation? Social Expenditure Patterns Among Poor Borrowers transcends corporate requirements to recognize the social obligations and non-commercial needs of impoverished borrowers. In this book, Rao empirically analyses the data of borrowers in Telangana, India, who obtained loans from a public sector bank branch in Hyderabad and a state-operated microfinance institution (MFI) in rural Balapur, to evaluate their actual loan usage compared to intended income-generating activity. The principal findings reveal that debtors consistently prioritize their immediate obligations, with a considerable share of the loans being allocated to sustenance, festivals, and children's marriages, whereas health and food constitute lower percentages owing to the availability of free services. Other factors, such as the loan's intended use, the borrower's dependency ratio, oversight, and attitudes towards repayment also affect such loan diversion. Providing crucial insights for bankers, practitioners, and policymakers, the results indicate that inadequate evaluation of borrowers' holistic economic, social, and sustenance requirements, coupled with swift technological advancements, propel microcredit misallocation-related behaviour. MFIs must formulate improved strategies and policies informed by these variables to optimize resource utilization and attain long-term financial stability for small-scale borrowers.

An economist by training, Dr. P. Gargi Rao currently works at GIZ as a Climate Change Advisor. She has previously been associated with the UNDP, UN, GlobalData Plc, ISB, ALRR College, and WOTR. Having studied in India, Zambia, and the UK, she obtained her bachelor's degree in Economics (Honours) from the London School of Economics and Political Science, an MSc in Development Economics from the University of Sussex, an MA in Economics from LPU, India, and a PhD with initial training from the University of Manchester and thereafter from Sabarmati University, India. Dr. Rao is a prolific writer and columnist. She has travelled across Asia, Europe, Africa, and North America.