India’s Microcredit Sector Faces Collapse From Defaults (NYT)

[somone]

http://www.nytimes.com/2010/11/18/world/asia/18micro.html

India’s Microcredit Sector Faces Collapse From Defaults
By LYDIA POLGREEN and VIKAS BAJAJ

MADOOR, India — India’s rapidly growing private microcredit industry faces imminent collapse as almost all borrowers in one of India’s largest states have stopped repaying their loans, egged on by politicians who accuse the industry of earning outsize profits on the backs of the poor.

The crisis has been building for weeks, but has now reached a critical stage. Indian banks, which put up about 80 percent of the money that the companies lent to poor consumers, are increasingly worried that after surviving the global financial crisis mostly unscathed, they could now face serious losses. Indian banks have about $4 billion tied up in the industry, banking officials say. “We are extremely worried about our exposure to the microfinance sector,” said Sunand K. Mitra, a senior executive at Axis Bank, speaking Tuesday on a panel at the India Economic Summit.

The region’s crisis is likely to reverberate around the globe. Initially the work of nonprofit groups, the tiny loans to the poor known as microcredit once seemed a promising path out of poverty for millions. In recent years, foundations, venture capitalists and the World Bank have used India as a petri dish for similar for-profit “social enterprises” that seek to make money while filling a social need. Like-minded industries have sprung up in Africa, Latin America and other parts of Asia. But microfinance in pursuit of profits has led some microcredit companies around the world to extend loans to poor villagers at exorbitant interest rates and without enough regard for their ability to repay. Some companies have more than doubled their revenues annually.

Now some Indian officials fear that microfinance could become India’s version of the United States’ subprime mortgage debacle, in which the seemingly noble idea of extending home ownership to low-income households threatened to collapse the global banking system because of a reckless, grow-at-any-cost strategy...

[MadHound]

1. Looks like it went to hell when the profit players got involved,

Micro-loans were working well when the NGO's were in charge, but then the profit motive came into play and screwed up everything for everybody, turning micro-loans into India's version of payday lenders. Sad.

[renate]

2. this is really heartbreaking... the poor just cannot catch a break

I wish there were more information in the article about organizations like SEWA and Kiva and the Grameen Bank, instead of the focus being so much on loans from the for-profit banks.

[Renew Deal]

3. I posted something about this the other day: India's Microfinance Crisis is a Battle to Monopolize t

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x83919