Microfinance becoming commercial

Microfinance has experienced a rapid growth in many countries, in particular Bangladesh and India, in which there are approximately 30 million clients. It is an anti-poverty tool, which issues loans to groups that are in need of financial support. It is surprising that even though it is a measure to improve the well being of people as well as economic states of countries, it has moved into a zone of attack. The accusation is that the industry is becoming too commercial.

The Bangladesh government has been arguing about the 27% interest rate microfinance institutions can charge and India’s authorities have been criticizing for-profit micro lenders that are entering the NGO-dominated sector. Even though MFI’s margins are tiny due to the need to making and collecting small loans, governments are afraid that high interest rates are going to end masses of people stuck in debt after trying to change their lives for the better.