A series of microfinance-related suicides in India have recently been reported, raising questions about whether the interest rates charged by microfinance institutions (MFIs) are usurious.

In one particular incident, a man in East Godavari attempted to commit suicide by swallowing pesticides after agents from MFIs repeatedly visited him to secure repayment of his overdue microloans [3]. In another incident, a woman in Kateru who was reportedly depressed after being harassed repeatedly by MFIs to repay her overdue loans was found dead in a nearby well [2]. Her family suspected that she committed suicide because she could not afford repayment of her microloans. In Andhra Pradesh, a ten-year-old girl was reportedly abducted by agents of MFIs to force her mother to repay her microloans [1].

These incidents have reignited the debate on whether interest rates charged by MFIs are excessively high [4]. In response, the government of India also rolled out a debt-swap scheme [5] to help self-help groups that are struggling to repay loans and is finalizing a piece of legislation that will regulate methods of loan recovery practiced by MFIs. There have also been calls in the government for a hard cap on interest rates charged by MFIs at 24 percent per year [6].

The Indian MFIs reporting data for 2009 to the Microfinance Information Exchange (MIX), the microfinance information clearinghouse, have an aggregate loan portfolio of USD 4.6 billion, total assets of USD 5.1 billion and 26.4 million active borrowers [7].

By Trevor Kwong, Research Assistant

Sources and Additional Resources:
[1] The Times of India: Agents kidnap girl to punish mother for loan default:
http://timesofindia.indiatimes.com/india/Agents-kidnap-girl-to-punish-mother-for-loan-default/articleshow/6738846.cms

[2] The Hindu: MFI burden ‘kills’ Anganwadi worker:
http://www.hindu.com/2010/10/12/stories/2010101260890400.htm

[3] The Hindu: ‘Harassment’ by MFIs triggers suicides, attempts:
http://www.hindu.com/2010/10/14/stories/2010101455980500.htm

[4] The Economic Times: Are MFIs showing shylockian streak?:
http://economictimes.indiatimes.com/articleshow/6733199.cms?prtpage=1

[5] The Hindu: Debt swap scheme finalized:

http://www.hindu.com/2010/10/15/stories/2010101555730100.htm

[6] MICROCAPITAL BRIEF: India’s Finance Ministry Asks Banks to Ensure That Microfinance Institutions (MFIs) to Which They Lend Cap Lending Rates at 24%:
http://www.microcapital.org/microcapital-brief-india%E2%80%99s-finance-ministry-asks-banks-to-ensure-that-microfinance-institutions-mfis-to-which-they-lend-cap-lending-rates-at-24/

[7] Microfinance Information Exchange: India:
http://www.mixmarket.org/mfi/country/India

Browse the MicroCapital Universe and add your entry to the wiki at?http://www.microcapital.org/microfinanceuniverse/tiki-index.php