The backlash in India against microlenders shows the political risk the industry faces as it shows an increasingly commercial face, says the Financial Times.
Following last year’s $350-million initial public offering by formerly nonprofit lender SKS Microfinance, Indian Andhra Pradesh state accused microlenders of seeking “hyper profits” and severely restricted collections and new borrowing.
Critics of the rapid growth and commercialization of microfinance—which started out as a largely philanthropic effort to finance small businesses in the developing world—say for-profit lenders are burdening impoverished borrowers with high interest rates and mounting debt.
Supporters contend commercial microlenders can give the poor access to a much bigger pool of capital.
Commercialization has weakened microfinance’s traditional emphasis on lending to women, who make up far less of lenders’ portfolios once they switch from nonprofit to for-profit, The Wall Street Journal writes.