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Microfinancing in india

microfinancing in india

Problems With Micro Loans In India

April 2, 2011 | Author Microloan

Problems plaguing Micro Loans in India

Micro loans first came into prevalence in India when NABARD started the scheme for poverty stricken disadvantaged people to start their own small scale businesses. For lending of money to the poor rural community, the government set up MFIs’. They were created as a helping hand, a ray of light for impoverished people who did not have the capital to start a small business. MFI’s doling out micro loans replaced the traditional moneylender. But there are many problems plaguing the Micro loan.

Though micro loans were meant to alleviate poverty, a lot of MFI’s started misusing the funds and exploiting those who were in need.

Many MFI’s have been accused of using inhuman methods to collect money. Not only are the poor beneficiaries

harassed, they are intimidated, abused and tortured physically and mentally in the name of loan collection.

Micro loans in India have often taken the form of a cycle of loans which borrowers find hard to repay. For instance, a woman borrows a certain amount of money from an MFI. Since she needs to repay a certain part of that money every week, she borrows again from another MFI. Then to repay the second loan, she borrows from a 3rd MFI. And so the vicious cycle continues.

A lot of MFI’s have been accused of charging exorbitant rates of interest on micro loans. Sometimes it is more than what a traditional moneylender would charge.

What these problems highlight is the need of monitoring of MFI’s. There are a huge number of good MFI’s who have been working in this field with commendable success.

Category: Payday loans

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