Microfinance Groups Agree to Publish Interest Rates

Microfinance Groups Agree to Publish Interest Rates

Eleven microfinance groups that together serve nearly twenty-six million people have agreed to publicly report their annual interest rates, a move that many hope will empower the world's poorest borrowers, the Associated Press reports.

In the midst of increasing commercialization within the field, some experts, including Grameen Bank founder Muhammad Yunus, said interest rates should be set to cover costs, not maximize profits, and that a lack of standardized reporting makes it hard for borrowers to determine how to get the best deal. To help address these issues, Grameen and a handful of other groups have signed on to the new MicroFinance Transparency initiative, which is designed to bring truth-in-lending standards to the developing world by publishing standardized annual interest rates on the Internet. Although the initiative is still lining up funding, officials said they expect to start publishing country-specific data on the Web in October.

A rush of new entrants into the microcredit field, including Citigroup, Credit Suisse, Deutsche Bank, and Morgan Stanley, has created a flurry of offerings. According to Deutsche Bank, the volume of microfinance loans hit $25 billion in 2007 — up from $4 billion in 2001 — and another $250 billion is still needed. The bank expects private investors to pour $20 billion into microfinance institutions in 2015 — ten times more than they did in 2006.

The push for disclosure comes amid intense debate within the field pitting privatization advocates against those who believe one can save the world or make a profit — but not do both. Members of the pro-market faction argue that civic-mindedness alone will never draw enough capital to serve the billion people who want rudimentary banking services. Profitability, they add, is the key to sustainability.

Other members of the transparency initiative disagree. "Microcredit is about helping poor people get out of poverty," said Yunus. "If you are making profits you are moving into the same mental mind-set as loan sharks."

Erika Kinetz. "Microfinance Comes Clean With Rates." Associated Press 07/28/2008.