Formal micro lenders are playing an increasingly important financing role in remote and rural areas where banks have limited reach or are unwilling to lend to the poor, industry analysts say.

Nearly two dozen women told Context they did not go to banks for loans because they were either asked to provide collateral, which they could not manage without any assets in their name, or do lengthy paperwork - a challenge for those with little to no literacy skills.

More than 75 percent of adults - and over 80 percent of women - are financially illiterate in India, according to the National Centre for Financial Education.

Shalini Sinha, the India representative for WIEGO, a network which helps informal workers, warned that if poor women were not offered adequate financial knowledge and insurance, it could force them to turn to loan sharks.

From shop owners and jewellers to subcontractors, many locals operate as private moneylenders, who, compared to banks, are more easily accessible and do not bother with documentation.

“(But) the interest charged is so very high … that she cannot repay the loan, so she takes another one and it becomes a vicious cycle of poverty,” Sinha said.

‘Borrow with pride’
Loan sharks have monopolised the rural credit market for generations in India, often charging abnormally high interest rates of up to 10 per cent a day, financial experts say.

They rarely spare defaulters, using heavy-handed means to collect debts.

In September, a married couple in southern Andhra Pradesh state died by suicide after loan app agents threatened them by saying their intimate photos would be posted on social media.

Andhra Pradesh, once known as the centre of India’s microfinance sector, curbed micro lending activities more than a decade ago after a spate of suicides by borrowers, and in 2015 it banned moneylenders from operating without a licence after arresting some 200 people over harassment complaints.

Vivek Tiwari, the managing director and chief executive officer of New Delhi-based Satya MicroCapital Limited, said one of the main challenges for his teams was battling informal lenders in new places.

“They don’t want us in these markets,” he said, recalling an incident in which his colleagues were held at gunpoint in a northern village by local moneylenders.

Tiwari, also the vice chair of Microfinance Institutions Network (MFIN), a self-regulatory organisation for the sector, said that despite obstacles MFIs were making significant inroads in unbanked and financially unserved parts of India.

Read the full article about microfinance for women in India from the Thomson Reuters Foundation at Eco-Business.