The problem is more political than economical.More than 90% of those who receive the loans are party cadres of the ruling party,who have no scruples about repayment.So long as the ruling party stays in power,the creditor is safe in not repaying; we have seen instances of loans extended to people by the Government being written off keeping in mind elections.
Those who take the loans are confident that even if the opposition comes to power the loan will not be called in as it might affect the vote bank of the party.
So, so long as politicians keep on splurging money to further powerlust,economy will go for a six.
Story;
Lending to the poor has proved so profitable in India that microfinance institutions saw their loan portfolio jump from $252 million to $2.5 billion in two years, raising fears of a subprime-like microfinance bubble.
Microfinance institutions (MFIs) watched their loan portfolio in India jump from $252 million to $2.5 billion between 2005 and 2009, according to data compiled by Sa-Dhan, an umbrella group for the sector. Last year alone the number of borrowers jumped 59 percent to more than 22 million people, and loan portfolio grew 56 percent. When including government-supported microcredit programs, the sector overall grew to more than 70 million borrowers and a $7.5 billion market.
http://www.csmonitor.com/World/Asia-South-Central/2010/0630/In-India-warnings-of-a-microfinance-bubble
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