For skeptics of for-profit microfinance, an article in today’s Wall Street Journal by Ketaki Gokhale brings some redemption. I can’t remember another article on microfinance with such sharp insights and a good set of numbers without the spin from venture capitalists bankrolling the for-profit lenders.

Here are the major points Gokhale, a former colleague, makes in her report from Mahbubnagar in Andhra Pradesh, a microfinance hub in the state:

One, the market share in rural debt of traditional and unregistered moneylenders has grown from 17.5% in the 1990s when microfinance virtually didn’t exist to 29.6% today when private equity players, no less, scour the countryside looking for sterling returns.

One could interpret this to mean that microfinance is unable to fully meet the growing demands for credit, suggesting room for many more players; or, let’s look at Gokhale’s second major finding:

“Some microfinance borrowers say they need village moneylenders to help them pay their debts on time. Some academic researchers believe the moneylenders are keeping afloat many microfinance groups.”

This is necessary not only to avoid individual default but also to avoid group default because smart microfinance companies take cross-guarantees and group guarantees. Consequently, one person’s default will blackball the entire group.

Three, some analysts reportedly say moneylenders are the ones who are floating the microfinance lenders in order to boost their own business. Microfinance lenders deny this. But could there be a collusion of sorts?

Four, microfinance loans to women have resulted in few women-run businesses being started in Mahbubnagar, Andhra Pradesh, according to Gokhale. This is important given the fact that microfinance becomes productive and socially useful only when the money is used to start and run businesses, as microfinance pioneer and Nobel laureate Muhammad Yunus did in Bangladesh.

The larger significance of the finding could be the following: The rural poor may be sinking deeper in debt, nullifying microfinance’s original goal of saving the poor from the clutches of unscrupulous usurers.

Do we need better regulation of the microfinance lenders?