The holiday season is a great time to spend time with family and friends. The conversations range far and wide from new boy and girlfriends for the kids to world wars and peace. I have a "sister", Shermali, from Sri Lanka who's astronomer father was a colleague of my dad and she lived with our family through undergrad and grad school years. She now comes to my parent's house in Tucson with the rest of us for Christmas. This year the topic of microloans in India came up in our discussions.
Organizations make small loans to rural families in India to allow them to get started in business. There are hundreds of millions of people who can not get credit because they have few assets for collateral Many of them are women who often have less education and not as many business connections as the men in the village. The loans are typically $100 to $200. A common use of the money is to buy a cow or a sewing machine.
The program is an excellent idea, but it sadly had difficulties. In some cases, the loans were not well researched. A spending plan was not developed or tracked. People used the loans to pay for urgent family needs or, in the worst cases, gifts and un-needed items. Also, for-profit companies got into the loan business with the main objective to make money. Even with repay rates of >90%, the bad cases grabbed the headlines and the national government shut down the program in 2010.
Things are now looking up. India's central bank released national guidelines for microlenders in 2011 and set up a licensing system. Interest rates are now capped and people with defaults are barred for further loans. Through the program, women are becoming empowered and having a larger say in their villages.