‘Opaque MFI contracts can lead to sort of sub-prime crisis’

Stressing on transparency more than capping of interest rates, the pre-budget Economic Survey today asked the government to take steps to ensure borrowers understand the contract when he borrows from micro finance institutions. We have seen these kinds of phenomena even in advanced economies like the U.S. where the sub-prime home borrowers took on loans without understanding the terms they were signing on to,” it said. The Survey said that even as some MFIs adopt coercive recovery tactics, however, a blanket ban on their business terms would not be good for the system. “Such practices would lead to the MFI sector disappearing since no MFI whether it is a profit making one or a non-profit NGO, would want to give out loans knowing that these will not be recovered,” the Survey said.