The Crisis in Microfinance

"Without the controls, there will undoubtedly be a good deal of fraud, and improvident borrowing without fraud. With the controls, the amount of lending will be curtailed. But with or without controls, the amount of lending will be limited by the very high default rates that can be anticipated unless there is very careful screening of would-be borrowers. Interest rates will remain very high and will strangle many of the businesses that rely on microfinance. Microfinance may turn out to be a niche service, with little overall impact."

The Crisis in Microfinance—Posner - The Becker-Posner Blog