But perhaps most significantly, the financial community has woken up to the fact that there is a great deal of money to be made in microlending, where interest rates can range from 20 to 100 percent. The reality, however, is not always so rosy. However, the lending rates of SHGs to borrowers were not cheap. Although such high-interest credit is touted as a vehicle for poverty alleviation wherein the poor use the funds to undertake commercial ventures, various studies have found that the loans are largely used by poor people to meet their daily consumption needs. This seed money, in turn, will attract additional capital from the corporate sector and financial institutions.
Loans are to be provided to borrowers through a network of subsidiary lending institutions.
In order to assure investors a good rate of economic return, these corporate entities will lend at market rates. Critics charge that such microcredit, rather than resulting in poverty alleviation will simply keep the poor on the treadmill of debt or bypass them altogether in favor of those who can afford credit at market rates. The field is already crowded with microlenders of the latter variety whose exorbitant interest rates keep the poor trapped in a downward spiral of debt. What is desperately needed are more microlenders committed to the empowerment of the poor. Microlenders like SEWA combine low-interest microloans with labour advocacy on behalf of women employed in the informal sector, with provision of health care, training and other services, thereby raising the wages, education and standard of living for the women it serves.