Micro finance should be regulated

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A loan officer somewhere in India. There are good outcomes when done right, but things have turned bad. 

Micro finance is not glorious as majority of the reports out there proclaim. There are many findings to the contrary, including this article of FT. 

Micro finance has been converted from a small enterprise creation help for poor people to a monster greedy business machine for finance institutes to exploit poor people. 

According to the Lanka Microfinance Practitioners’ Association (LMFPA), data gathered from 37 MFIs for from 2017 to 2018 shows that there are over 2.8 million active borrowers, of whom over 2.4 million are women, who have taken loans amounting to Rs. 94 billion. 

The micro finance sales people are dishing out loans ( very small loan at bizarre high interest rates as much as 40%) to poor people for consumption purposes. Sales people know it. They don’t care because  their commission is at play. The recipient ( Most of the time a woman) is not finance literate at all, and all they care is getting that money to get out of the trouble they are in for the moment. 

It was found that women are compelled to borrow to finance health emergencies, funerals, coming-of-age ceremonies and weddings through microcredit facilities. “They give the loan for livelihood development, but we use the loan for other purposes. I showed tailoring and cattle rearing as reasons for getting the loan,” said a female from Batticaloa, while another from Monaragala said that she took the loan saying it was for cattle rearing. “I showed someone else’s cattle as my own since I don’t have my own. That is how people borrow. We show different means to borrow money,” she said

As the article mentions, there’s a direct link between women migrating to middle east countries as house maids to pay back the very small loans they received as micro finance, which have become un payable.  

The micro finance space is not regulated. This is sick.

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