Stress in Microfinance
Why in News?
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The microfinance sector in India is currently experiencing significant stress due to factors such as over-indebtedness among borrowers, high interest rates, and inadequate regulatory oversight. These challenges have raised concerns about the sustainability and effectiveness of microfinance institutions (MFIs) in promoting financial inclusion.
Important Key Points:
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Over-Indebtedness:
Many borrowers have taken multiple loans from different MFIs, leading to a debt trap and increasing the risk of default. -
High Interest Rates:
MFIs often charge high interest rates, which can burden low-income borrowers and exacerbate their financial difficulties. -
Regulatory Challenges:
The sector lacks a unified regulatory framework, resulting in inconsistent practices and oversight across different institutions. -
Impact of COVID-19:
The pandemic has further strained the sector, with disruptions in income affecting borrowers’ repayment capacities and MFIs’ operational stability.
