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Improving access to finance in India and shaping international anticorruption strategy

Some of the poorest families in India can now access affordable loans thanks to a new app developed by UCL in partnership with social finance enterprise Village Invest UK.

Coins in a glass pot with a plant growing out of it

28 April 2022

Professor Lucia Michelutti’s (UCL Department of Anthropology) research is transforming the understanding of democratic politics and the criminal economy in South Asia. 

Through her collaboration with Village Invest UK, Professor Michelutti is helping the UK government to recognise the links between politics, corruption and organised crime in India, shaping training of economic advisers and reframing funding to ensure it reaches those most in need. 

Her ethnographic research has uncovered the modus operandi of systems of bossism in South Asia, exploring how corrupted practices can become entrenched in everyday local economies, where violent entrepreneurs use private and state forces to gain wealth and social control. 

Professor Michelutti’s findings show that moneylending, usury and extortion often support these systems of power which are locally defined as ‘Mafia Raj’. 

Linking creditworthiness and status 

In 2016, Professor Michelutti began working with Village Invest (VI) to explore loansharking and lending practices in Rajasthan, northern India. She showed that it is more shameful in these systems to be refused credit than to be in debt. Debts create dependency and poverty traps, but also forge aspirations, solidarity and emancipation. Status, honour, gender and identities are central in determining creditworthiness and risk. 

The research showed a lack of credit rating tools for rural populations, and lack of benchmark data to identify social impact undermines financial inclusion. Crucially the work also showed how the risks of nonperforming social loans can be mitigated in communities with high levels of corruption and criminal or informal political economies.  

In collaboration with VI, Professor Michelutti developed a new Ethnographic Driven Risk Analysis Framework (EDRAF) tool to help manage risks in social lending. This has had dramatic impact on both lenders and borrowers in India. 

The framework automatically prepares business plans for each family and includes a mobile app to collect and map households’ debt and credit histories across wider family networks. This helps create fair credit ratings and to benchmark the loan’s future social and economic impact. It also identifies factors like conflict, corruption or criminal networks that might undermine future social lending. 

Informing financial lending and training 

EDRAF was trialled in Rajasthan between 2018 and 2019. A 2020 evaluation showed the trial helped 54 households in 120 villages to be granted Village Invest loans, with 40% of families saying they are better off and that their new business helped them to climb out of debt with local moneylenders, improve their standard of living, and send their children to school.  

Data and experience gathered through use of the tool has informed VI’s lending. For example, the lender now prioritises anonymity for lenders and employs heightened security approaches. As not all debts attract equal stigma, VI now considers local ‘hierarchies of debt’ and considers how potential borrowers’ vulnerabilities may impair their ability to pay back the loan or to get loans from other sources. The lending platform also now considers wider relationship networks and local power relations in lending decisions. 

Professor Michelutti and her team worked with the UK’s Department for International Development (DFID - now Foreign Commonwealth Development Office, FCDO), to heighten awareness of FCDO staff to the value and application of ethnographic methodologies and data sets. This has informed their advice on governance and corruption and their approach to training new advisors. The team’s research on predatory political economies has also helped frame new FCDO research commissions and funding priorities.  

Research synopsis

Improving access to finance in India and shaping international anticorruption strategy  

Some of the poorest families in India now have improved access to affordable loans thanks to an alternative social financing product developed from Professor Lucia Michelutti’s research in collaboration with the social finance enterprise Village Invest UK. Her work has also helped the UK government to recognise the links between politics, corruption and organised crime in India, shaping training of economic advisers and reframing funding to ensure it reaches those most in need. 

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