This is linked to the issue of exorbitant interest rates. Unable to pay back their microloans, recovery officers in India have been reported to resort to strong arm tactics that have led to a rise in suicides. According to a report by Society for Elimination of Rural Poverty, 54 suicides in the Andhra Pradesh province were a result of harassment by loan officers.

A particularly poignant story was that of a 16-year old daughter of a client. She was “harassed and humiliated” and asked to repay the loan by relying on prostitution. She was wrongfully confined in a house, after which she committed suicide.

Clearly, several factors led to this:

• Careless lending by microfinance institutions without assessing credit risk,
• Lax credit monitoring policies,
• Inappropriate employee training about customer dealing and credit collection, and of course,
• Unsuitably high interest rates on microloans which may be obscured through deceptive pricing.

This problem falls into the realm of consumer protection, which obviously needs more emphasis than ever before.
Unfortunately, this phenomenon isn’t unique to the microfinance sector and it certainly isn’t unique to India.

Credit collection departments in commercial banks often use derogatory means to recover their funds as well. This behavior is partially driven by the defiant nature of borrowers who misuse funds, but the financial institution’s credit approval policies get as much blame.

However, there are always two sides to each story, and you can read it here.