Understanding the Risks of Microfinance Loans

New accounts in micro finance are continually opened daily with many clients hailing from developing countries and also individuals with low incomes. The borrowers from the microfinance institutions are mostly unaware of the dangers of borrowing the money and also the vulnerabilities to abuses from the institutions. In a survey by Smart Campaign, the consumer movement surveyed 4000 micro credit borrowers in four countries and documented their findings in a report. According to the report, Peru and Georgia protect their consumers whereas, in Pakistan and Benin, the protection was robust.
Most of the clients in the microcredit sector do not take their time to understand the partnership they are getting into with the microfinance institutions. It includes the terms and conditions of their loans. In Georgia, multiple clients have once issued loans in US dollars. Unfortunately, the Georgian currency depreciated dramatically, and higher loan repayments by the customers affected their financial capabilities. There have been cases of scammers claiming to be credible micro finance institutions and made away with individuals savings.
Few customers take their time to understand the sophistication in markets and how it impacts on their credit rating. Clients should endeavor to establish that rules and regulations placed forward by a microfinance institution are understood and fair while highlighting the essential information including the modes and terms of repayment. The organizations should respect their clients and maintain a healthy cooperation.


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