Microfinance Bubble Traps Poor in Debt

Predatory lenders offer easy cash with gouging interest rates
By Jason Farago,  Newser Staff
Posted Aug 13, 2009 8:46 AM CDT

(Newser) – Microfinance, loaning tiny sums to the world's poor to help start small businesses, began as an anti-poverty strategy but quickly became highly profitable for private equity firms and foreign investors. In India, writes the Wall Street Journal, poor neighborhoods are being bombarded with high-interest loan opportunities, resulting in a bizarre slum-based credit bubble. "Too much money is chasing too few good candidates," said one microfinance expert.

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One woman in southern India says men working on commission came to her door and offered an easy loan, although she makes just $8 a week. She took out $126 at eye-watering interest rates—not to start a business, as microfinancers intend recipients to do, but to pay overdue bills and buy food—and then another nine loans from different lenders that left her buried in debt. She wants to see the creditors kicked out of her community, "not just for now, but forever."
(Read more microfinance stories.)

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