Sunday, November 21, 2010

India Microcredit Faces Collapse From Defaults - NY Times Article

From the article:

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’ sub-prime 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.


  1. SKS Micro-finance has become a Proxy, Hammer it, Hammer the Whole Industry

    There was full drama too at the counter, the day after the share hit the 20% downward circuit breaker, reacting to SKS comments that its collections have come in lower than normal, post the Andhra Pradesh government ordinance. Presumably, to allay investor's fear after the crash, the CEO-Chairperson of SKS, Vikram Akula and his CFO, Dilli Raj, on opening bell gave an one-hour studio interview with CNBC-TV 18, the country's premier financial news channel. During the course of the interview, the SKS share soared to trigger the upper 10% circuit breaker, giving rise to speculation that this was a turnabout in the script's downturn momentum.

    Yet, this elation proved a momentary bubble.

    Read More:

  2. Let me kick-it off by saying that microfinance is a weapon, I stress "a" weapon, to help fight poverty, but it is not the panacea.

    Leveraging capitalism to raise money to help fund more loans is what its all about.

    However what has been uncovered and alleged in the case of SKS and elsewhere with other MFIs in India does bring disrepute to the microfinance sector, and comparisons to the sub-prime debacle here in the US is legitimate and appropriate.

    When loan-sharks in India and elsewhere change the shingle outside and dress themselves up as a microfinance institution demands greater oversight and regulation to keep the sharks at bay, or at least to make it difficult.

    Microfinance does work to help get the poor standing on their own two feet, but again on its own it's not sufficient. Education, healthcare, and access to drinking water are the other key ingredients that also have to be provided.

    The good news is that there are those with money across this world who care enough to actively engage in fighting poverty.



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