Micro-financing- A Bane or A Boon?

In the 1970, Mr Muhammad Yunus won the Nobel Prize for creating micro-financing. Microfinance provides financial services to those who have low income, as these people do not have any belongings or assets that can be used as collaterals when loaning from banks. The people will borrow a small sum of money to set up a business, buy cattle or seeds, and will return the money after a while.
In China, where micro financing services have just started, many people are benefitting. Before it began, those villages living in rural and poor villages had no money to buy or grow food to feed their families. With the help of microfinance, some were able to start businesses to make some money to buy food. After making back the money, they will return the money. In the end, the borrowers benefit, as they have enough money to feed their family, and can even make some extra money through the business they set up. For example, Madam Xiao, who lives in Wending, China, had problems feeding her children five years ago. However, with the help of micro-financing, she has set up a weaving business by borrowing S$194-582 annually. Now, she has enough money to feed her children and save money for their education.
However, things are not going well in India. Some of the borrowers borrow so much that they cannot pay back the money, and some the lenders are charging 50%-60% interest, while normal lenders only charge 24%-36% interest! Since accessing the loans are easy, many poor Indians have been lured into debt traps. In the Chennaipally village in the state of Andhra Pradesh, there have been twenty-five suicides due to micro-credit woes, and fifty other suicides in other villages. One such tragedy was the example of Ms Bandaru Padma. She took loans from four micro-financing firms totalling 79,000 rupees (S$2,000), to pay for her expenses. The 23 year old was unable to pay the 2000-rupee-per-week installment and had recovery agents hounding after her for the money. In the end, she took her two children to a well and jumped down. All three died.
The large number of suicides has prompted the authorities to do something. Last month, Andhra Pradesh passed a law that banned microfinance firms from charging high interest rates, and also restricted borrowers from taking multiple loans. In China, to prevent this from happening, charities only lend money to married women, as they are the ones who take charge of the household finances, and do not squander away the money or waste it on alcohol, and thus are more likely to return their debts.


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Hi guys, I'm a student in Singapore, and this are some thoughts and essays I have written over the years.