Ramanagaram financial diaries: cash patterns and repayments of microfinance borrowers

Abstract

Using three months of data from financial diaries tracking daily cash flows of a group of microfinance borrowers in two urban slums in Karnataka, India, we show that the burgeoning microfinance sector faces a number of constraints. These households are borrowing from multiple sources, specifically multiple MFIs. Secondly, a large fraction of each household's budget is spent servicing loans with the two largest components of budget being loan repayment and food expenditure. Finally, households are observed to recycle their debts with over 27 per cent of fresh borrowings being spent on existing debts. These households in the urban slums of Ramanagaram are organizing their lives around multiple MFI memberships, multiple group meetings in a week and numerous repayment schedules. Apart from the stress to MFI clients of managing debts of small amounts from various MFIs, the Indian MFI sector will have to learn to grapple with the fallout of multiple memberships.