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Micromanage the microfinance pandemic

30 Jun 2022

The Morning yesterday (29) reported about the dire situation those who have taken microfinance loans from microfinance lenders continue to face, despite the fact that these issues have been going on for years. In addition to high interest rates and unfair, unclear conditions that put groups of borrowers in difficulty at once, this menace of unregulated microfinance loans keeps pushing borrowers, especially women, to even more harmful situations such as sexual exploitation and suicide. The main concern the continuation of this issue raises is, despite having launched several programmes during the past few years, successive governments, authorities, and industry regulators have failed to put an end to it. According to some reports, the number of persons who have died by suicide during the past three years owing to microfinance issues exceeds 200, and that is a pretty good reason for Governments and authorities to take stern action. Why is it important to look into the microfinance issue now, amidst a pandemic and an economic crisis that have created a plethora of new issues? According to the available data, a large number of those who have already obtained microfinance loans are farmers, entrepreneurs, and those who survive on daily wages. Professionally, they face massive issues such as the lack of job security and financial security, and amidst the current economic crisis, they are among the most affected groups. Farmers, for example, are in an extremely difficult and uncertain situation, due to the Government’s short sighted organic agriculture plan, the prevailing fuel shortage, and the lack of imported equipment necessary for their profession. A large number of entrepreneurs too are affected due to import restrictions, as these have rendered them unable to import some of the raw materials that they need, while the decline in purchasing power of their clientele is also an issue. Above all, they are all facing high inflation and decreased income. In this context, the authorities have a responsibility to pay more attention to the microfinance issue not only as a lingering matter from before, but also as an issue that has worsened the economic burden on several groups that are already heavily affected by the economic crisis. It is also important to note that the risk that unregulated microfinance loans pose is not limited to those who have already acquired their services; it is likely to cause more issues to those who have become poorer due to the economic crisis. One of the reasons that so many people have taken unregulated microfinance loans – sometimes with no understanding of or regard to the risks they pose – is the convenience with which they are offered. That is a risk factor in the current economic crisis, because people’s income has waned, and even if their income has remained the same, its value has decreased significantly. When it comes to entrepreneurs, they are unlikely to get financial support from financial institutions, as it is difficult to guarantee timely repayment. In this context, the people are more likely to opt for easy options such as microfinance loans, and the fact that they are desperate to obtain any financial assistance to keep their small businesses afloat is most likely to result in them disregarding the risks these loans could pose and risk becoming victims. Thus understanding the extent of the risk faced by those in dire economic conditions with no way to obtain support from credible financial institutions must be understood by the Government and the relevant authorities if there is to be any concrete change, or this issue will continue to impact the country in the future too. It is true that owing to the economic crisis, the Government is left with limited financial resources to assist these people; however, it can still take stern measures to regulate unregulated microfinance institutions, and introduce necessary laws to address this issue.


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