The great microcredit experiment in India was a wild success… but now it’s on the verge of collapsing entirely.

• Politicians in India are accusing microfinance institutions of taking advantage of poor borrowers, and encouraging borrowers not to pay back their loans.
• Microcredit is one of the only ways that poor people around the world can get loans to start small businesses. And in India, microfinance has become a booming industry in recent years.
• Unfortunately, many people who receive microloans won’t be able to pay them back. So the loans tend to be really small, and their interest rates are really high. That means that entrepreneurs who do pay back their loans cover the cost of those who don’t pay.

Facts & Figures

• Indian banks have about $4 billion tied up in the microfinance industry
• In the past few weeks, less than 10% of borrowers made loan payments
• SKS Microfinance charges a 24% interest rate on its microloans

Best Quote

“The money lender lives in the community. At least you can burn down his house. With these companies, it is loot and scoot.” – Reddy Subrahmanyam, Senior Official of the Indian Government

Tags: India, microfinance, microloans