Paper short abstract:

This paper discusses the impact of the Covid-19 lockdown on microfinance borrowers in Tamil Nadu, India. It demonstrates that the crisis has exposed the limits of for-profit financial inclusion interventions offering credit as well as the fragilities of a livelihood model that is sustained by debt.

Paper long abstract:

Microfinance borrowers are imagined to have been transformed into entrepreneurs, establishing profitable enterprises which have lifted them out of poverty. In most cases the reality is very different: micro-loans reach low-paid wage workers, some locked in debt-based labour contracts, who use them to manage asynchronous incomes and expenditures. This paper discusses the impact of the Covid-19 lockdown on microfinance borrowers in three villages in Tamil Nadu, India, based on nine months of phone-based qualitative interviews. Here borrowers include agricultural daily wage workers, brick moulders, sugarcane harvesters, and textile workers. The last two decades have seen aggressive micro-lending and an explosion of debt in this region. Some women held up to six microloans, circumventing government limits by borrowing through others, juggling between these and credit from other sources, using each to repay the other. The Covid-19 crisis has exposed the limits of for-profit development interventions offering credit as well as the fragilities of a livelihood model that is sustained by debt. With the lockdown, most non-farm activities stopped and migrant workers returned to the villages without incomes. Microfinance institutions first completely disappeared, offering no protection to borrowers. When they returned they tried to enforce repayments despite the state moratorium, during which interest in any case accrued. When the moratorium ended, MFIs used the threat of blacklisting through the credit rating system to ensure that pending repayments were made – often through sales of assets or more expensive borrowing – and excluded those who continued to face income losses from new loans.