Paper
Corruption and Financial Crime - an Issue in Microfinance?
Addressing investor concerns on corruption and money laundering in MFIs
3 pages
This paper aims to clarify investors' and stakeholders' questions about corruption in MFIs. Many MFIs operate in countries with weak rule of law, open and latent conflicts, and corruption in everyday life. Social and private investors who finance MFIs may, therefore, be concerned about the sustainability and profitability of their investments. The paper states that:
- Corruption may occur in an MFI as in any other type of company, organization or government institution;
- Empirical experience, together with theoretical reasoning, however, provide good reason to believe that corruption is not a big issue in MFIs;
- Most MFIs have high quality lending portfolios, and there have been very few reports of corruption;
- Lending small amounts to poor people does not provide much room for corruption;
- High MFI borrowing rates reflect the high costs of handling loans and therefore, do not attract corruption.
The paper states that on average, MFIs tend to be more sheltered against corrupt practices. Some MFIs may even, in collaboration with international partners, become a driving force in disseminating non-corrupt standards and business ethics within their regions.
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