News: Microfinance industry draws scrutiny

[quote]India’s microfinance industry, which surged to prominence when George Soros-backed SKS Microfinance raised $358 million in an IPO, faces a regulatory clampdown that could erode profits and hurt growth.

Reports of dozens of suicides by poor borrowers in Andhra Pradesh, the hub of India’s microfinance sector, prompted the state to enact rules against aggressive recovery practices by lenders who make loans that average about $150 to poor customers at interest rates that can top 30%.

The finance minister said this week that he expects the industry to develop a code of conduct on interest rates and recovery practices, while the Reserve Bank of India (RBI) recently set up a panel to study issues surrounding the sector.
Several industry insiders and watchers said greater oversight is needed, although many worry about overregulation…[/quote] … ny_1460191

While no one in the right senses would support the high interest rates and the over-zealous capitalistic model applied on rural poor, does the fact that people have to resort to microfinance organizations indicate a much bigger problem of lack of rural credit which no one seems to address? Will over-regulation dry up an expensive yet (at least) available source of credit?

What are your thoughts?