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I posted a piece about two years ago warning about the danger of a microfinance bubble in the developing world. Now the Indian version of US subprime crisis came into fruition.
WSJ reports that the microlending fueled by high-yield hungry investment banks and private equity firms has caused an upheaval in India.
The microlending movement that was supposed to help lift millions of people in India out of poverty has in recent weeks fallen into chaos.
Urged on by local government officials and politicians, thousands of borrowers have simply stopped paying lenders, even though they have the money. The government has begun ratcheting up restrictions, fearing that borrowers are being buried by usurious interest rates. In some cases, officials have even arrested lending agents for allegedly harassing borrowers.
…the unfettered expansion was leading to poor lending practices, multiple loans to the same borrowers, and fears of widespread repayment problems.