Out of India's booming microlending industry, a dark reality. Bloomberg Markets magazine travels to the Indian state of Andhra Pradesh, which has taken on a third of the country's $5.3 billion in microfinance loans—and has seen more than 70 people commit suicide between March 1 and Nov. 19 as a way to escape payments or debt-triggered struggles. What began as a charitable movement—loaning very small sums to people too poor to qualify for bank loans—now attracts public, for-profit lenders eager for high returns. One microcredit ratings company found that more than half the 66 Indian microlenders it tracked were for-profit.
Indian microlenders borrow from banks at 13%; they can charge interest rates nearly three times that amount. That's caused some borrowers to turn to loan sharks—who can charge 100% interest—in order to meet their payments, or to suicide. One woman says that when she fell behind on her payments, loan officers urged her to prostitute her young grandchildren. In reaction to the suicides, in October the government of Andhra Pradesh barred microlenders' collection agents from visiting borrowers and now requires companies to get the OK from local authorities before making new loans—a move that has brought lending and repayments to a standstill. Click to read the lengthy piece in its entirety.
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