Daily Video

March 31, 2011

Micro-Lending Poses Challenges in India

Micro-lending, or giving small loans to entrepreneurs in developing countries, has become a worldwide trend in recent years and has largely been linked to positive economic growth. However, competition has become so stiff among micro-lending organizations that some borrowers are having a hard time paying off all the loans they are being offered.

Some micro-lending organizations began as nonprofits with the goal of improving lives in developing countries. However, many of those micro-lenders have since begun making profits, and debate rages over whether this is the right direction for the micro-lending sector. Some argue that profits are necessary to make sure there’s enough money to meet lending need, while others say that making money off of the loans goes against everything micro-lending stands for.

Some people who have borrowed money from micro-lending organizations report being hounded by aggressive money collectors that even drove some villagers to suicide in desperation. Now, new legislation in popular micro-lending countries like India is making sure that lending is done responsibly without overwhelming borrowers. The proposed changes include collecting money monthly instead of weekly, working with borrowers to overcome their payment challenges and lowering interest rates.

Quotes

“The lesson is you can make profits, and society will support you. They might even, actually, respect you for it. But if you are seen to make excessive profits, if you are seen to being profiteering or being — you know, personally enriching yourself beyond what is considered reasonable — and that varies from location to location — then society will revile you.” -Vijay Mahajan, BASIX lending organization

“I have loans from three different companies, about $700 in all. I use the money from one to pay off the others, and I will continue to do that until I can’t anymore, and then I will stop making payments.” – Maria Polepaka, borrower

“We have grown too fast. And we have pushed credit on the same client, and therefore, they have defaulted.” – Roshaneh Zafar, microfinance lender

Warm Up Questions

1. What is a loan?

2. What does it mean to default on a loan?

3. What is the difference between a nonprofit and a for-profit organization?

Discussion Questions

1. Do you think all of the blame for excessive microlending can be placed on the lender, or can some also be placed on the borrower? Why?

2. How do the borrowing practices described in this video compare to the situation behind the housing crisis in the U.S.?

3. Do you think micro-lending organizations should be allowed to make a profit off of their operations? Why or why not?

Additional Resources

Video Transcript

NewsHour Extra Economics Page

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