Non-profit venture aims to sharpen image of microfinancing industry

By Richard Harris | 09:30:00 | 01 August 2008

The future of the microfinance industry will be in the spotlight in Bali this week at the Asia-Pacific Microcredit Summit, where delegates will debate whether the commercialisation of lending to entrepreneurs in developing nations will help or hinder the fight against poverty.

Meanwhile a new non-profit organisation, MicroFinance (MF) Transparency, was launched on Monday with the aim of bringing the same principles of transparent pricing to microfinance institutions (MFIs) as exists in commercial finance.

Barry Horner (pictured), chief executive of Paradigm Norton Financial Planning, which specialises in charitable giving and frequently advises clients on microfinance investment, said MFTransparency was an 'excellent initiative', adding that microfinance would be a growing area of interest as a new generation of retiring entrepreneurs and philanthropists sought ways to maximise the social return of their money.

But the launch comes amid growing controversy in the microfinance world as the private sector increasingly realises the financial opportunities of lending to the poor. In April last year major Mexican MFI Compartamos raised $450 million through an initial public offering, but was heavily criticised for its interest rates which often exceeded 100% annually.

Muhammad Yunus, founder of Bangladesh microlender Grameen Bank, welcomed the launch of MFTransparency comparing it to 'truth in lending' legislation in the US, which ensures loan costs are comparable by mandating standards such as the annual percentage rate.

Yunus said microcredit had 'lost its innocence' and its association in the public mind with charity. 'Compartamos has exposed a different reality – a reality of large, unbelievably profitable microfinance institutions, of international investment bankers and Wall Street investors jostling for a share of those profits, of unappetizingly high interest rates.'

Compartamos said it had done greater social good as a profitable business than it had been able to in its previous NGO incarnation.