November 17, 2010 6:10 PM Subscribe
India's microcredit industry may be near to collapse
posted by Forktine (54 comments total)
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Microcredit has been lauded as a free-market solution to poverty, but has also come under increasing criticism in recent years for the high interest rates charged and large profits generated by many lenders.
Responding to public anger over abuses in the microcredit industry — and growing reports of suicides among people unable to pay mounting debts — legislators in the state of Andhra Pradesh last month passed a stringent new law restricting how the companies can lend and collect money.
Even as the new legislation was being passed, local leaders urged people to renege on their loans, and repayments on nearly $2 billion in loans in the state have virtually ceased. Lenders say that less than 10 percent of borrowers have made payments in the past couple of weeks.
If the trend continues, the industry faces collapse in a state where more than a third of its borrowers live. Lenders are also having trouble making new loans in other states, because banks have slowed lending to them as fears about defaults have grown.
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