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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 Jonathan Lewis, CEO, MicroCredit EnterprisesMicrofinance has before it a defining moment. Is the Compartamos IPO the oft-remarked “good side of capitalism,” a marketplace rejoinder to global poverty? Or is it the canary in the coal mine, a warning that microfinance is going awry? As a matter of principled commitment to free and fair markets, no microfinance institution has the “right” to charge price-gouging interest rates just because it can. No microfinance organization ballyhoos a mission statement which includes generating lucrative profits from excessive interest rates charged to impoverished borrowers. The most orthodox and compelling rationale for microfinance usury is that high interest rates will catalyze investment and eventually create interest-lowering competition. Unfortunately, competitive microfinance markets in many parts of the world are a long way off. While the poor wait, should the borrower of today pay sky-high interest in order to attract private capital so the borrower of tomorrow will have the same opportunity to pay usurious interest rates? Ideally, microloan pricing should be determined between a borrower (willing buyer) and a local microfinance institution (willing seller). Sadly, poor borrowers, burdened by functional and financial illiteracy and without other economic options, are in no position to speak truth to money any more than they can speak truth to power. We in microfinance uphold the market reality, which demands that interest rates sustainably cover a local microfinance institution’s expenses. No margin, no mission. Nonetheless, there is something unseemly about the very wealthy earning unnecessarily excessive profits off the unbearably poor. Some argue that to help desperately poor people help themselves, they must be charged extraordinarily high interest rates which, in part, are needed to enrich well-intentioned investors who require financial returns to justify their doing social good. Is that the best we can do? Some interest rates are offensively predatory. This is a matter of degree and circumstance, and fair-minded people can differ. For this social investor, the microfinance interest rates underpinning the Compartamos IPO are dangerously comparable to microloan-sharking. Read more on this topic in Microcredit Enterprises E-News Next critical comment: Carmen Velasco |