Sort Out Microfin Crisis: Rejuvenate Rural Economy

The State Government is cracking down on microfinance institutions, using strongarm tactics to recover loans, and drafting a law to check their excesses.

- Ramu Patil Assistant Resident Editor

Stringent measures are required to reign in such firms that make borrowers' lives miserable by pushing them into debt traps. But, that's just one aspect of the solution.

The current crisis, to some extent, reflects a larger problem -- the distress in the rural economy -- and this calls for a holistic approach, including the law that is in the works.

The system's failure also seems to be contributing to the problem as people would not take loans at exorbitant interest rates of up to 30% if they have any hope of getting help from the state or the banks. This has created a conducive market space for firms to charge unconscientiously high rates of interest.

According to those in the know of the registered microfinance industry's operations, as of November 2024, the gross loan portfolio outstanding of the regulated players in the state was around Rs 38,000 crore. Overall numbers will be much higher. There are many players in the market, including non-banking financial corporations, trusts, moneylenders and firms offering loans online. Even some of those associated with the industry term it a 'messy' market.