Over the last decade or two, there has been lots of coverage of microfinance. Microfinance lends a small loan, often called a microloan, to individuals as a way to help them start a small business and lift themselves out of poverty. Microlenders have received a lot of praise within the years, including Yunus, who won the Nobel prize. However, some modern microfinance firms don't appear to be following in the ethical or economic footsteps of the ones that came before.

Founder of Microlending firms

Microlending firms in Asia have experienced turbulence recently, leading some to question what the future of microcredit holds in that region. The New York Times reports that since SKS Microfinance did its IPO in August of 2010, it has lost about 70 percent of stock value. A loss of over $15 million was posted by the company in 2010's last quarter after the first quarter posted a profit of over $14 million. SKS and microcredit firms have had the Indian government on their backs recently. This is because there have been so many accusations of strong arm loan collections. Last year the Economic Times reported that about 30 people in the state of Andhra Pradesh committed suicide in a 45-day period, allegedly due to debt to microcredit loan providers.

Governments angry about microlenders

Microlending has gone too far in several countries. This is the opinion of both Indian and Bangladesh governments. India's central banks passed a law stating no more than 50,000 rupees, or $1,120, could be taken out in a microloan. The loans can't exceed 26 percent either. Microloan lender payments were something politicians in Andhra Pradesh told individuals to stop paying. Forbes states the loan repayment dropped to 10 percent in that area quickly. Yunus is the head of Grameen Bank in Bangladesh. He was forced out of his position after the bank put millions into microloans. The Economics Nobel Prize was awarded to Yunus. This was all because of his work there. Loan companies are accused of forcing people into a vicious cycle of debt and some are accused of using illegal or immoral methods to get borrowers to pay their debts. Helping individuals in terrible situations for money is simply a crippling tool making microcredit a bad thing. This is how Yunus feels about for-profit loan providers.

Not seeing the end yet

Microcredit loan providers may be struggling due to economic and political conditions, but the model is beginning to take off in other countries. Donations are made with the Kiva organization from private individuals. This has allowed microloans to take place in many places. American microfinancing has also become available now. A joint venture was put together with Samuel Adams brewing company and ACCION USA. The food business an individual wants to start can be done with small loans, USA Today reports. Startup companies can get loans from the Small Business Administration.

Citations

New York Times

nytimes.com/2011/05/11/business/global/11micro.html?ref=business

Forbes

blogs.forbes.com/meghabahree/2010/11/18/is-the-microfinance-sector-in-india-headed-for-a-crash/

USA Today

usatoday.com/money/smallbusiness/2011-05-06-creative-financing-for-small-businesses_n.htm

Economic Times

articles.economictimes.indiatimes.com/2010-10-15/news/27621807_1_mfis-suicide-credit-flow