MS. DIANE VOGELFrom WAMU 88.5 at American University in Washington, welcome to "The Kojo Nnamdi Show," connecting your community with the world. I am Diane Vogel sitting in for Kojo. Later in the broadcast, we're bring traditional dishes into our modern -- onto our modern table with cookbook author and chef, Joan Nathan. She's going to talk to us about demystifying old school cooking on this first day of Hanukkah for some in our audience. But first, poking holes in what, until a recently, was a very popular method of combating poverty worldwide.

MS. DIANE VOGELIt's been held as a free market way to lift some of the world's poorest communities, Microcredit, the idea that you could give out small loans to small entrepreneurs and help them start some sort of business. Maybe you'd give $50 to help a woman buy a sewing machine or a few -- or $25 to buy a couple of goats. But now in some countries like India, micro loans are drawing attention, but not for a good reason. They're drawing comparisons to the subprime and pay day loans that drown so many Americans here in debt.

MS. DIANE VOGELMillions of borrowers in India have begun refusing to pay their debtors. Even if they have the money, some are not paying on their micro credit loans. So while micro financers were once hailed as philanthropists, other people today are labeling them as loan sharks. You've got to ask, what's going on? Joining us to explain what might Microcredit is today, how it's changed from the past and what its future might mean in developing economies around the world and how it will have or whether it will have any impact on the American economy.

MS. DIANE VOGELOur two guests who have been with us before, David Roodman is a research fellow at the Center for Global Development. David Roodman, welcome back.

MR. DAVID ROODMANGreat to be here.

VOGELAnd our other guest is Sam Daley-Harris. Sam is the director of the Microcredit Summit Campaign, a project of the RESULTS Education Fund, which is a group trying to promote the best practices in the field of Microcredit. Sam, welcome back to you as well.

MR. SAM DALEY-HARRISThank you.

VOGELThank you. So we have just learned recently Americans have become familiar with these crazy ideas that credit and too much of it provided to the wrong people can create a bubble that can really shake an industry or shake an economy. And I know that the two of you just returned from India. I'm wondering if it's fair to make comparisons between what's going on in India now and what went on here. Because it seems a little crazy in a way to compare somebody getting a $50, $100 loan to, you know, the housing crisis or economic crisis than it went on with the millions of dollars and yet you say that there are some fair comparisons.

ROODMANThat's right. I do think that what has happened in the Indian state of Andhra Pradesh is kind of like the mortgage crisis here in the United States. And I would say that -- I mean, there are lots of differences, but it's similar in two key ways. First, it really seems like the core of the story is that the industry grew too fast. And that's a story we all understand. They were just kind of pushing loans into women's hands.

VOGELAnd by the industry, you mean the Microcredit industry or the banking industry?

ROODMANThe Microcredit industries. The private industry. Now, for profit, that's making these small loans to women -- generally poor women. But they were making larger loans than they usually did at the, you know, the first stage in working with women. And lots of them are coming into villages all at once so that the credit was piling up too quickly. So it's like, in that sense, it really does seem to have been a kind of bubble. It's also like the American crisis in that if you really dig into it and try to understand what's going on, it's really complicated. You know, there's the role of government. What was the fault of -- what was the role of policy? Was it all about greed? You know, it's a layer of politics. Much to talk about.

VOGELMost definitely. That's David Roodman, research fellow at the Center for Global Development. Sam Harris, how do you think -- it's my understanding that in this area in southern India there's a type of populism, a big revolt kind of going on grass roots swelling of people who say, even if I have the money to pay, I am not longer going to pay my loan. That's what's I've been hearing. Is that what's accurate or what's really going on? Who's fueling it? Is it grass roots? Is it government? Because I've heard some -- I've heard conflicting reports.

DALEY-HARRISBefore I answer that...

VOGELSure.

DALEY-HARRISI want to make one other distinction and that distinction is we're talking about micro finance in Andhra Pradesh, which is micro finance there.

VOGELSure.

DALEY-HARRISWhat's happening next door, for example, in Bangladesh is very different. And so we shouldn't paint everyone with the same brush. For example, my understanding that in Andhra Pradesh there's -- as David was referring to, there are lots of different movements and players. And so politicians in power and out of power are urging people to not pay their loans back and that kind of thing. That said, you know, it's sad what's going on in that state. It's not like the press has gotten it all wrong or anything like that. Just, you know, you have cases of women with two and three and four and five and more loans...

VOGELWow.

DALEY-HARRIS...from institutions who, formally, their focus was on their clients and you might say now their focus is on numbers so their clients became numbers. And I always love to say this as a contract setter, when Mohammed Yunus of the Grameen Bank would've been asked years ago what his strategy was in forming the bank, he would say, I didn't have a strategy. I just kept doing what was next. But when I look back, my strategy was whatever banks did, I did the opposite. If banks lent to the rich, I lent to the poor. Banks lent to men, I lent to women. If banks made large loans, I made small ones. Banks required collateral, mine were collateral free.

DALEY-HARRISAnd on and on. Yes, that was my strategy. Whatever banks did, I did the opposite. Well, at some level, micro finance groups Andhra and elsewhere, you might say, then they even went overboard on this, became more like banks and looking -- in looking at the numbers instead of their clients and less like micro finance institutions.

VOGELThat's a very helpful description, Sam. And it leads me to a question I had. Because when I first read about this, the first story that the New York Times told her -- one of the stories the New York Times told was about a widowed woman who was from an impoverished village and she took a loan from a private micro finance company because she wanted to build a house. She had never had a bank account before, she was paid -- or never before earned a regular salary, but they gave her a $200 loan anyway. She was struggling to repay.

VOGELAnd then, as she had difficulty repaying, she began to take another loan and another loan, like our payday loans here and she got herself in deeper and deeper, which ended up having her forfeit her land and her dreams. Now, it's a heart wrenching story, but the first thing I thought of was Microcredit, in my understanding, was never intended for building your own home. Microcredit was intended, at least as Mohammed Yunus, I believe, the Nobel Prize winner -- I believe it was sort of seed money or venture capital money to start a business.

VOGELAnd they were supposed to -- whatever money went in, was supposed to help you generate an income coming out. Did the understanding of Microcredit, as a whole, change or did these individual businesses change it? If the government had kept a tighter rein on the reasons you could loan money, would that have solved this?

DALEY-HARRISYeah, let me make a couple of distinctions.

VOGELSure.

DALEY-HARRISNumber one, some micro finance groups do, do housing loans.

VOGELOkay.

DALEY-HARRISBut it's only after a client has successfully repaid three self employment loans. Let me make another distinction. In a sense, you could look at micro finance as having a fork in the road and one fork asks this question primarily. What is the health of the investors, the financial investors in our micro bank? The other fork in the road asks the question, what is the health of our clients? Two very different questions. And so in the best case scenarios -- and I'm thinking about a friend who -- two of my heroes, Ingrid Monroe of Jamiebore (sp?) and Kenya mom Andunus (sp?), Grameen bank in Bangladesh when they would have a client who maybe had a cow and the cow died, what they would ask is, what's the problem?

DALEY-HARRISLet us understand the problem and see if we can solve it. In other words, the point of micro finance is not to make lives worse for people. Also wait, that's one fork in the road. Now, you're reading from an article in the New York Times that's not that fork. It's a different fork. So with the dead cow, they might say, well, let's extend the loan over five years in tiny, tiny repayments and give a new loan so she can get back on her feet. But that's very different from having to go to this borrower or this borrower or this borrower institution -- and these institutions don't even know or turned a blind eye to the fact that she's got -- she's juggling four loans already.

VOGELDavid?

ROODMANYeah, well, part of being poor is that you have access only to low quality financial services. You know, you and I, we have...

VOGELTrue in the United States, as well as in India and Bangladesh.

ROODMANRight. You and I have salaries. Maybe we can have access to IRAs and credit cards and mortgages, all these financial services that are just tailored for what we need. Part of being poor is that your services are not perfectly matched to what you need. The credit have -- poor people have lots of needs for credit, reasons to buy credit. One is to develop, I mean, to build a house or improve a house. Maybe another is an emergency loan to pay a doctor bill, pay school fees or to start a business.

ROODMANAnd so what they have to do is patch together the services that are available to them as best they can to meet what they believe are their most pressing needs. And I don't feel ready to second guess that woman's decisions about how to use credit. It does seem like she, you know, got in trouble. Maybe she shouldn't have borrowed so much. I do think it's also important to keep in mind -- another dynamic that's kind of going on with the press coverage. You know, one of the reasons that micro finance became so famous is that there was a story about how it lead to micro enterprise and lead people out of poverty.

ROODMANNow, there is some truth to that. People who get these loans do, more often, start little businesses. But once people -- journalists had the idea in their head that this is what happened. Well then, they needed two examples to write a story so they went and looked for the woman who had the best experience with Microcredit to demonstrate. Now, the same journalists are going to the same countries and they're looking for the worst examples of what's happening because that's the new story line. Neither is the whole truth.

VOGELWell said. Well, we're here to try and get to the bottom of the whole truth in all of about 24 or 30 minutes. So we'll do what we can. But you're listening to the Kojo Nnamdi show. I'm Diane Vogel sitting in for Kojo today. We're speaking with David Roodman who is research fellow at the Center for Global Development and we're speaking also with Sam Daley-Harris, the director of the Microcredit Summit Campaign, a project of the RESULTS Education Fund of which he is the founder and President. They're a group trying to promote the best practices in the field of Microcredit.

VOGELWe're going to take a short break and continue this conversation on the other side. You can join the conversation by calling 1-800-433-8850, 1-800-433-8850. What role do you think banks and lenders should be playing in the life of the poorest people in the part -- in those parts of the world or here? And have you seen a small seed money loan or a small loan make a difference in the life of your family or of an individual you know? Call us and share your story at 1-800-433-8850 or e-mail us at kojo@wamu.org where you're listening to the Kojo Nnamdi show. We're talking micro finance and we'll be right back.

VOGELWelcome back. You're listening to the Kojo Nnamdi show. I'm Diane Vogel sitting in for Kojo and we're talking about microfinance and the issues that are confronting a number of countries where microfinance or microcredit has been used to help people living in poverty, but unfortunately perhaps the cart is getting ahead of the horse. The banking industries have gotten perhaps a bit too large or have changed their focus. And now, there seems to be a bit of a microcredit crisis in India and some people fear that it may be spreading to Bangladesh and other countries where microcredit is an important part of helping people get out of poverty -- live their lives and get out of poverty.

VOGELWe'll go back -- let's circle back a little bit to the beginning where I asked you about the comparisons of what was happening with the microcredit crisis in India compared to the subprime mortgages -- crisis here. And I understand that the government has -- the Indian government is not a -- perhaps a -- well, how honest a broker is the Indian government in this issue? We certainly know that the government is there, in theory, to regulate and help the country move forward, but we also know they have some of their own interests that are at heart. David Roodman, please.

ROODMANAll right. One thing I was impressed with when Sam and I were in India was how almost no one really defended the microcredit industry with enthusiasm. Even the people in it kind of felt like things had gone wrong and so the micro creditors are accused of several things. One is high-interest rates, which I don't think really stands up, but also opaque interest rates, not really explaining the true costs and then also really aggressive collection practices, meaning going to women's houses and yelling at them and embarrassing them if they don't pay back. And that has -- it's been argued and I think there's some credibility to this -- has led to, in some cases, to suicide, which we can talk more about.

VOGELUm-hum.

ROODMANSo there's a real problem. But I don't think that this is a case of a grassroots borrower revolt. What happened is in mid October, the government of the state of Andhra Pradesh suddenly came out with a new law and ordinance, which just froze the industry, brought it to a complete standstill. They told everybody in the villages, don't pay. And they told the village officials, don't let the loan officers in, so quite draconian. And unfortunately, as someone put it to me there, the government is both a player and a referee. The government is not a fair referee because there's a separate very big program called the self-help group program, which grouped these groups of about 12 to 15 women and there's something like a million of them in Andhra Pradesh.

ROODMANAnd they provide savings and credit and they tend to be a little bit more forgiving and flexible, as far as I understand, with people who are not having -- been able to repay their loans on time. So when women got in trouble and they couldn't repay, they defaulted first on the government program. So then the government program felt threatened by the private micro creditors and the law is very parochial in the sense of protecting the government program.

DALEY-HARRISMaybe I can make one other...

ROODMANSure.

DALEY-HARRIS...distinction. Another thing that's at play in Andhra Pradesh, there was an IPO recently where -- I think there were 20 millionaires in the microfinance group that did the IPO as a result, et cetera, et cetera. And in India, where the field might be 10, 15 years old, next door in Bangladesh the field is more than 30 years old. It didn't go this IPO route.

DALEY-HARRISSo if you were to talk about Bangladesh, you might talk about the group BRAC, who in addition to the financial services, they have a million kids in BRAC schools. They have millions of people affected by the BRAC health program. They have poultry vaccinators. They process tens of thousands of liters of milk a day. They have special quality seeds for the farmers. So it's this whole other thing going on next door with programs that are twice as old that didn't go this fork in the road toward the -- let's make money.

VOGELWell, thanks for explaining that. Sam Daley-Harris is the Director of the Microcredit Summit Campaign. And before that, you've heard David Roodman, who is a research fellow at the Center for Global Development. We're talking about microcredit and microfinance in some of the poorest parts of the world. Thank you for, again, making a distinction between countries, that this is not a broad brush. Things that are happening in India are happening in India for a particular reason.

VOGELAnd the fears that some in the media, or otherwise, have highlighted of this potentially spreading are not as simple a worry or may not lead to the same A to B to C that the media, when it doesn't always get all the details correct, may be worrying about. So Bangladesh having a twice as old a program much more established, tracing itself back to the Muhammad Yunus Grameen Bank and so on. I'd like to go to the telephone and Janine in Silver Spring. Janine, you're on the air.

JANINEHi. How are you?

VOGELGood.

JANINEIt's really ironic that my daughter was just saying to me that she participates in one of the micro lending programs and received -- she's put in the money and she did get -- the person worked and paid it back. So she suggested to me that I could find someone and invest in it. But she looks at the amount of the money that people request. But she did mention something about the banks taking some type of commission or something and I wanted to find out, is that true? Also, it's ironic because we are going to India and I wondered if there are other areas in India that are not having that program, especially Maharashtra state or Rajasthan state. Are they also participating in the program and if so, are they having problems also?

VOGELThanks.

JANINEI'll take my answer off the air.

DALEY-HARRISWell, let me say one thing.

JANINEYeah.

DALEY-HARRISIf you just send an e-mail to info@microcreditsummit.org and name some states, we have our Asia organizers based in India and in Maharashtra and Rajasthan. There are other microfinance groups that we can help point you to on that one.

VOGELTerrific.

DALEY-HARRISThe question included something about service fees, which I assume...

VOGELYes.

DALEY-HARRIS...she meant interest. And, yes, the microfinance groups charge interest in an attempt to cover their costs. And, you know, I think that's something that needs to be explained. I mean, it's not a freebee. There's the potential for dignity to be built in 'cause I take a loan, pay it back with interest and build my business. Now, there's also the potential for the black side, or dark side, of that if it's taken too far. I take five loans and I'm charged interest and I can't pay it back so there's no dignity there. But, yes, interest is charged.

DALEY-HARRISI think Andhra Pradesh is unfairly charging, having interest rates that are too high. That's true other places. I don't know that Andhra Pradesh -- and they're frankly in the mid and above 20 percents in their interests. But that's fair in the -- a lot in India are paying 13 percent to banks for their loan funds and then they have to pay staff, rent on an office, maybe a motorbike, whatever it is. So that's not so far off.

VOGELAnd David, anything to add?

ROODMANWell, the microcredit interest rates in India are among the lowest in the world, tend to be about 25, 30 percent, which might sound high, but it's not much more than I would pay on a credit card loan here. And actually, inflation in India is higher and you kind of have to adjust for that. So the interest rates are not really that high. One of the things that's special about microfinance, within the worlds of philanthropy and foreign aid, is that it can work like a business. Poor people are willing to pay for this service and so it has built this quite impressive institutions, which compete and grow and really care about serving people at the bottom of the pyramid. But what goes -- that goes hand in hand with charging enough to cover costs so that they can scale up and serve lots of people.

VOGELAnd we're going to go back to the phones, try and get somebody else in. Jessica in Fairfax, Va. Jessica, you're on the air.

JESSICAHi. Thanks for taking my call. I've been contributing -- well, I guess, loaning to kiva.org now for many, many years. And one of the things that influenced me was being in Cambodia and talking to a motorcycle taxi driver and listening to how difficult it was for him to raise funds in order to buy a motorcycle to, you know, earn a living for his family. And from having a background in finance, my understanding is that a microfinance is really stepping in to fill a volume -- I mean, a vacuum that lack a banking infrastructure, you know, in countries that don't have a banking infrastructure. And the loans that I have with Kiva are all over the world -- Philippines, South America, India, Africa, all over the world.

JESSICABut it's typically countries that don't have a good banking infrastructure. And I know you've said that -- you've made a distinction between different countries. I haven't really noticed that distinction with Kiva, but I would also ask is there a big distinction between the programs that are actually administering these micro loans, whereas we had that -- the same situation here in the states where you had a handful of very greedy, disreputable lenders that helped bring down, you know, reputable loans.

VOGELAnd gentlemen, I'm going to ask you -- thank you Jessica for the call. Gentlemen, I'm going to ask you each to respond to Jessica and give us a perspective. Unfortunately, we're running down on time so respond to Jessica and give us a perspective on what we can expect next to happen as a result of this.

DALEY-HARRISLet me say one thing about her question. She said, well, isn't microfinance a response to poor banking structures in countries. It's not just that it's poor. It's that it serves elites and it stops there. And that's why there's this vacuum that she spoke about. So, yeah. And the only other thing that I would say -- she said, well, what's the difference between microfinance groups. And although this is -- I'm not going to give a list or anything, but the point is, there are microfinance groups that actually manage their operation to achieve social good or social performance. And those are the ones that you want to link to. You want the ones whose bottom lines prioritize the clients doing well.

VOGELWell, that certainly makes sense and I'll let -- thank you. That was Sam Daley-Harris, the director of Microcredit Summit Campaign, the founder and president of the RESULTS fund, a group that is trying to promote the best practices in the field of microcredit. And I'll let David Roodman, from the Center for Global Development, have the last word.

ROODMANMy last word is that credit is like a drug. It can be very helpful in moderate doses, but it can also be deadly if it's given in too large doses. And it's also kind of like an addictive drug because if you start to borrow too much, the temptation is to borrow even more. A big challenge for the microfinance movement, that really it hasn't handled that well to date, and that's what we're seeing in India, is how do you make the system support moderation, prevent it from getting out of control? We don't have the equivalent of doctors who are writing prescriptions and helping us all make sure we don't take too much of this drug.

VOGELWell, thank you for a peek into a world that is pretty foreign probably for most of us, but that has some surprisingly relevant lessons for us to learn in our economy. You've been listening to David Roodman, research fellow from the Center for Global Development and Sam Daley-Harris, the director of the Microcredit Summit Campaign. I'm Diane Vogel sitting in for Kojo. And when we come back from this break, we'll be talking food. We'll be talking about making traditional dishes, but updating them for a shortcut world, for when we have no time. And one of our favorite cookbook authors, Joan Nathan, is here to join us on what is this first night of Hanukkah for many of our Jewish audience members. Thanks very much for listening. We'll be right back.