The Dark Side Of Microfinance

Interesting article in the Globe and Mail. When the shift started from non-profits offering microfinance lending and financial education to private companies and eventually public companies ($350 million IPO in India for SKS Microfinance), the social safety net that assured repayment of the loan is gone.  Now collection companies are forcing people into an untenable position of paying back loans even before they have defaulted on them.  In some cases, to boost sales the microfinance companies convinced borrowers to take out multiple loans.  These are people who live on less than $2 a day, who are often times uneducated, and are looking for any way to get out of poverty.

It will be interesting to see what financial reforms the Indian government brings out in light of the recent spat of suicides, if anything at all.


One Response to “The Dark Side Of Microfinance”

  1. Rajan Alexander Says:

    For Micro-Finance survival, they need to muzzle their Spin Doctors and listen more to their High Priest

    A string of suicides in Andhra Pradesh that put micro-finance under the spotlight, triggered a backlash because of which, MFIs found themselves reduced to fighting for their basic survival. No surprise here to find a variety of spin-doctors functioning as their apologists, fending off and neutralising any criticism that the industry faces currently, almost oblivion to the fact their support is to a slow sinking Titanic. Two of the most significant spins in this debate are those related to suicides and interest rate. In this post, we bust these spins.

    “I believe in Schumpeterian creative destruction. Its time has come. The present MFI model has to go…. It wasn’t just about giving loans. It was also about creating livelihood mechanisms, which would build capacity among the poor to repay their loans easily, and leave them better off than before”

    This is Economic Times quoting Vijay Mahajan, considered the high priest of Indian microfinance suggesting that either MFIs change their business models or go bust.

    Read more:

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