Abusive Microfinanciers Have Prompted Lawmakers in India to Regulate the Industry

A new law is being introduced in response to frequent suicides at the hands of bullying lenders.

Indian women

Microfinance borrowers are being bullied so ruthlessly by lenders—to the point of inducing suicide in some cases—that Indian authorities are introducing a new law to "control the lending rates and curb the often abusive approach used by MFIs during recollection," according to the Hindustan Times.

While most microfinance lending around the globe has a measurably positive effect on borrowers, the business has become less do-gooder as it's grown into a hugely profitable form of banking. But as of now, the system is largely unregulated. "Though there are legislations like the Money Lenders (regulation) Act, to check traditional moneylenders, non-banking financial institutions like MFIs are not governed by any particular legal structure," reported the Hindustan Times.

And that's becoming a problem in Andhra Pradesh, India's fourth largest state and home to 40% of India's microfinance institutions (MFIs), where there's reportedly a lending-related suicide every couple of days, mostly by women. The new bill would levy punitive measures for harassing or molestation of women in name of recovery.

We wrote last month about India's microfinance boom, some of the current trends in the industry, and the need for increased regulation as microfinance grows among some of the world's poorest borrowers. As microfinance becomes "big business," we wouldn't be surprised if new laws like the one being proposed pop up all over the country, not just in Andhra Pradesh.

[Image: flickr user McKay Savage]

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  • Nate O'Shaughnessey

    "Abusive Micro Financiers"
    Didn't we used to call them Loan Sharks?

    My wife and i lend regularly through Kiva, and think that microfinance can be a very helpful thing for some people.
    However, Microfinance is only a short step from being used for greed and control, exploiting the desperation of the impoverished.
    Kiva's 0%apr removes the incentive for those wishing to capitalize on the desperation of people needing small capital loans.
    Without the lure of monetary gain for those doing the lending, it helps keep "abusive micro-financiers" out of the system. Probably still not 100% effective, but certainly it helps.