Microloan Sharks
This report argues that MFIs, in an effort to achieve double bottom line goals, tend to charge exorbitant interest rates to their impoverished clients. It discusses the Banco Compartamos IPO as a case in point.
Compartamos’ clients routinely end up paying annual percentage rates (APR) of over 100 percent, whereas microlending institutions the world over average an APR of 31 percent. Virtually every MFI argues that they need to charge high interest rates to cover the cost servicing very small loans in rural areas to people with no credit history. High APRs also translate into profits that help them attract investors and funds to improve outreach to the poor. This raises the question of whether microfinance should be about alleviating poverty or about making profits.
Finally, the paper states that MFIs need to reconcile the power of the markets to reduce poverty with the power of the markets to exploit the poor, and also include intangible valuation in terms of social return on investment in building their business case.
