Wednesday, 17 June, 2009

No loans for the self-employed

Self-employed professionals pay more interest on personal loans, have a tough time getting credit card, and are eligible for far less home loans than employed people of equal income.


Because they are less creditworthy. How?

How is a doctor, architect or lawyer who can earn, say, Rs 2,00,000 a month on his own steam less creditworthy than an engineer or executive drawing the same salary. Isn’t the former more creditworthy, because he doesn’t have a job to lose?

How about fluctuating income? Well, shouldn't the lender be more concerned about how disposable income instead? I mean, if the employee has wildly varying expenses, wouldn’t that effect his ability to repay?

So, why is the self-employed professional sub-prime? The only explanation that comes to my mind is that lenders forget to adjust for income. Among poor, the self-employed are worse off than the employed. (Hence, they are denied credit by the institutions and have to turn to autarkic moneylenders.) This disparity diminishes with rising income, but banks refuse to take note.


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