Wall Street Journal reporting from India:
One lender, who wished to remain anonymous because his business is unregistered, gives borrowers short-term, collateral-free loans "as quickly as an ATM gives money," he boasts. Interest sometimes has to be paid on a daily basis and works out to an annual rate of 48%. The poor use his loans as a stopgap when they can't make their weekly microfinance repayments because their income was less than expected, he says.
The interest rates [one borrower] pays to pawn brokers range from 36% to 48%, she says, and she had to put up gold jewelry as collateral. Her microfinance loans have interest rates of 18% and 24%.
"Group pressure makes us go to moneylenders" to cover their microfinance loans, says Baleshwari, who goes by only one name, as does her sister. "We get small loans for 15 days to fill the gaps when we can't pay. If you lag behind, the rest of the group members can't get new loans."But microfinance lenders say the growth has not caused the growth in traditional forms of money lending. Instead, they say, the Indian economy is growing and with it there has been an increase in the demand for credit.
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