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| Volume 5, Issue 1: July, 2007 | ||||
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E-news Main Page In This Issue Compartamos IPO: Microfinance Doing Good, or the Undoing of Microfinance?SAVE THE DATE! The Asia/Pacific Region Microcredit Summit 2008 Archived Issues Vol 5 Iss 1 Jul '07 E-News Information |
Remarks by Muhammad Yunus, Managing Director, Grameen BankI am shocked by the news about the Compartamos IPO. Microcredit should be about helping the poor to get out of poverty by protecting them from the moneylenders, not creating new ones. A true microcredit organization must keep its interest rate as close to the cost-of-funds as possible. Compartamos’ business model, and the message it is projecting in the global capital markets, is not consistent with microcredit. There is no justification for interest rates in the range of 100 percent. My own experience has convinced me that microcredit interest rates can be comfortably under the cost of funds plus ten percent, or plus fifteen percent at the most. Some are saying that the IPO will give a significant boost to the ‘credibility’ of microcredit in global capital markets. But that’s my fear, because it is the wrong kind of ‘credibility’. It is leading microcredit in the moneylenders’ direction. The only justification for making tremendous profit would be to let the borrowers enjoy it, not external profit-driven investors. The ideal model would be one that puts full or majority ownership of the MFI in the hands of the clients. Borrowers of Grameen Bank own 94 percent of its shares. When socially responsible investors and the general public learn what is going on at Compartamos, there will very likely be a backlash against microfinance. The field may find it difficult to recover if corrections are not made. Supporters of microfinance should be working to make sure that MFIs can legally take and on-lend savings as Grameen Bank does, and as Compartamos is allowed to do, rather than rushing to capital markets. I'm urging all microcredit practitioners to remain true to the essence of the microcredit movement, which dedicated itself for more than 31 years to expanding the reach of microfinance in order to put poverty in the museums where it belongs. Next critical comment: Jonathan Lewis |