Regulate Microcredit to Protect Borrowers

Abstract

Private for-profit companies are playing an ever-larger role in the microcredit industry. The volatile combination of profit seeking companies, minimal competition, and vulnerable, ill-informed, ill-educated borrowers has opened up dangerous potential for exploiting the poor. Expecting microcredit organizations to exercise self-restraint and self-regulation is naively optimistic and will not work. Regulation is needed to protect the microcredit clients in three areas: transparency, interest rate ceiling, and loan recovery practices.

Keywords: Microcredit, regulation, transparency, interest rate ceiling

JEL Classification: G28, O10, M10, I30