Micro Loan: Not All that Glitters is Gold in India

Women’s empowerment through a business micro loan may be losing its way in India. More and more women in business are accepting individual loans through non-banking micro finance companies (MFCs) operating in India. It should be noted that these lending programs are operating with the approval of the Reserve Bank of India (RBI).

A Micro Loan Becomes Difficult to Repay

Since the beginning of micro financing in 1994, approximately 80,000 groups representing one million business members have received micro funding. This lending program has been a success, to the extent that thousands of women have received much needed financial help.  However, with many non-banking MFCs entering the market simply to create profitability through exorbitant interest rates, the increased lending is NOT good.

Micro financing occurring through non-banking MFCs comes at a higher interest rate, often as high as 39%. MFCs lend to multiple individuals within a business group or company, versus lending to the group, or business entity. These individuals often become mired in debt as they borrow from one MFC to pay another. Women applying for these loans may be borrowing from four to six lenders at a time, with an average loan of $200 to $600 per lender. This debt load causes desperation among the borrowers, especially when the loans are being made without real income generation to support the micro loan.

Micro loans were developed to bring the very poor out of poverty. Microgiving encourages borrowers to be aware of MFCs operating to make a fast profit at the expense of the most needy.  Deal only with reputable lenders – or individual programs – that support micro financing for the purpose of helping the needy rather than creating the opportunity for profit.  If you are in need of short-term funds and would be interested in a micro loan, or would like to join our list of donors to help others, please visit our website.

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