Microfinance crisis

This time I have listened to the podcast called: “Microfinance crisis”. This podcast is dedicated to the risk, which borrowers of microcredits take. Here is the link:

http://www.bbc.co.uk/programmes/p00c343p

            The duration of this podcast is 18 minutes but I’ve listened to it till the end because it was a really interesting record. During the first listening I understood almost everything, because English of the speakers wasn’t that fluent as English wasn’t their native language. But I listened to this podcast twice, because I needed to jot some ideas down during the second listening.

            This podcast is about so called microfinance. Microfinance (or microcredit) was born in Bangladesh in the 1970-s and operated by non-profit making groups. But international lenders and mane western governments led the industry to a great commercialization and aggressive marketing. The idea of microcredit is simple: it provides small loans to poor people, who have no other access to banking system. So, microcredit empowers poor people across the world to start their own business and create economic growth. But in some cases it pushes poor borrowers into taking high cost loans they can’t afford. The borrowers often don’t know the interest rates or the terms and conditions of the loans. Many microfinance agencies charge interest rates of 20-50%. After series of complaints over exorbitant interest rates and stern debt collection methods Bangladeshi authorities have now kept the interest rate at 27%. Reports of suicides among the desperate people unable to repay microfinance loans have rocked the industry in Bangladesh. There is more than a thousand microfinance institutions in Bangladesh now. We can see the same situation in India. India’s microfinance industry is reported to be facing a possible collapse as almost all the borrowers in one state Andhra Pradesh have stopped repaying their loans. Politicians there have accused the industry of profiteering from lending tiny amounts to the poor. They have introduced tough new laws restricting how the companies can lend money and forbidding intimidation of borrowers, who can’t pay.
The main problems of people who take microfinance loans are:

·         A borrower has to start repaying money from the first week after money is borrowed. But not everyone can make weekly repayments:

·         The majority doesn’t buy an additional piece of land, machinery to start some business or upgrade it, they don’t develop their skills on the money borrowed. But as we can remember, microfinance is aimed at business developing.

I think that microcredit can be a “death-trap”. People who borrow money and can’t pay it back, borrow money from another source to cover their debts and so on. As a result, they are becoming poorer and poorer.