1- Give me five ethical risks in micro Loans .

2- How can these risks be solved !

 

1. Ethical risks in micro Loans.

Microfinance is often assumed to be an ethically progressive industry, but in recent years it has been the target of much ethical criticism. Below mentioned some of the ethical risks associated with Microloans providing by Microfinance institutions.

1. Microfinance institutions have been accused of using exploitative lending techniques.
2. Microfinance institutions have been also accused of charging usurious interest rates.
3. Institutions that providing Microloans are using forceful loan recovery practices.
4. Reducing the ability of microfinance to alleviate poverty.
5. Some of the microfinance institutions (MFIs) operate in one geographical area and trying to reach out to the same set of poor. Thus, in other words, they are competing among themselves which is resulting in multiple lending and overburdening of rural households. In order to expand aggressively, some of the MFIs have been blamed for poaching clients, thereby lowering their group mobilization costs.

2- How can these risks be solved!

Summarizing the ethical concerns noted above, that there are no general ethical problems that undermine the justification for the whole microfinance sector that provides microloans. While interest rates are comparatively high, they seem more reasonable when put into the context of MFIs’ high costs and clients’ assumed level of tolerance. We have argued that this is so, at least so long as microfinance has beneficial effects on the poor. Furthermore, the MFIs that have used directly forceful lending or loan recovery practices may have acted wrongly, but it is less clear what to say about the indirect coercion—from the borrower’s situation and peers—that may be more typical of the industry. The modest conclusion is that further empirical evidence must be sought before taking sides on this issue. Accordingly, no a priori presumption should be accepted about the justification—or lack of it—for microloans.

And the best way to resolve such ethical concerns related to microloans is that the Government and reserve bank of any country should form or modify existing policy related to the lending of microloans by microfinance companies which can protect or be fair for borrowers. And that will bring ethical practices to be adopted by microfinance institutions.