In my view there is a fundamental conflict between the basic objective of MFI vs the returns which SKS claims to have made.It is nothing but Usury and they are worse than pawn brokers in the village.what really beats me is that people like Mr.Narayana Murthy have invested huge amount of money in such set up which has no social objective of uplifting of poor.God save the poor borrowers who borrow from SKS
MFIs are nothing but subprime lenders. It's predatory lending and it's very dangerous for the borrower as well as the society. The MFIs are following the same path as any subprime lender in the US. The only difference is the MFIs in India are more aggressive. After all the seed capital for the MFIs came from the US venture capitalists. VCs like Vinodh Khosla and some other VCs were bragging about their creations like SKS. They were proud that the repayment rates on their portfolios were more than 97%. The audience who ware listening to their bragging doesn't know that in countries like India there are no effective laws like Bankruptcy laws that are there in the US. The only options for the borrower is either paying-up the loan or face death threats. In the recent past SKS has taken one more step the morphs itself into a full fledged subprime lender. They want to uniquely identify each borrower and score them, and to make sure that they keep track of the borrowers forever.
Re: Uncreditworthy cannot repay the principle forget about high i
by Welcome on Oct 25, 2010 10:55 PM
Lenders have a fancy term to increase the interest rate, its called risk based pricing. The bigger the risk the higher is the interest rate. The fact of the matter is SKS targets only high risk and most vulnerable people. The question is should India allow these for profit organizations to lend to people who don’t deserve credit at higher interest than the market prices? If we let these players to continue than the borrowers will revolve from one loan to other loan to pay the previous loan until the balance sheets of these MFIs become big enough to pose a systemic risk. At that situation the govt. will step in to bail out the MFIs and spread the burden across all individuals.
The other option is to stop these MFIs and nationalize the portfolios. The lending to un-credit worthy should be community based lending, where the community will be responsible for underwriting the loan with community recourse. The lender should charge below market priced for these loans as the loans are 100% recourse.
Un-creditworthy cannot repay the principle, forget about the high interest.
MFIs are nothing but subprime lenders. It's predatory lending and it's very dangerous for the borrower as well as the society. The MFIs are following the same path as any subprime lender in the US. The only difference is the MFIs in India are more aggressive. After all the seed capital for the MFIs came from the US venture capitalists. VCs like Vinodh Khosla and some other VCs were bragging about their creations like SKS. They were proud that the repayment rates on their portfolios were more than 97%. The audience who ware listening to their bragging doesn't know that in countries like India there are no effective laws like Bankruptcy laws that are there in the US. The only options for the borrower is either paying-up the loan or face death threats. In the recent past SKS has taken one more step the morphs itself into a full fledged subprime lender. They want to uniquely identify each borrower and score them, and to make sure that they keep track of them forever.
Re: Uncreditworthy cannot repay the principle forget about high i
by Welcome on Oct 25, 2010 10:54 PM
Cont...
Lenders have a fancy term to increase the interest rate, its called risk based pricing. The bigger the risk the higher is the interest rate. The fact of the matter is SKS targets only high risk and most vulnerable people. The question is should India allow these for profit organizations to lend to people who don’t deserve credit at higher interest than the market prices? If we let these players to continue than the borrowers will revolve from one loan to other loan to pay the previous loan until the balance sheets of these MFIs become big enough to pose a systemic risk. At that situation the govt. will step in to bail out the MFIs and spread the burden across all individuals.
The other option is to stop these MFIs and nationalize the portfolios. The lending to un-credit worthy should be community based lending, where the community will be responsible for underwriting the loan with community recourse. The lender should charge below market priced for these loans as the loans are 100% recourse.
Un-creditworthy cannot repay the principle, forget about the high interest.
In India's dummy democracy, RBI has permitted Micro Finance Institutes to collect 52% interest from farmers and workers without sharing their risks and responsibilities.
