August 1, 2008

Microfinance Goes Back to Its Roots?

Posted at 12:41 PM

Major leaders of the global microfinance movement gathered this week at the Microcredit Summit Campaign in Bali, Indonesia to discuss some of the pressing issues that have affected the microfinance sector over the past year. A major issue of debate among Summit participants, which included Nobel Peace Prize winner and father of microcredit, Muhammad Yunus, was what to do about the growing commercialization of microfinance.

If you have been following any of the news on microfinance lately, you know that there has been a lot of attention paid -- both good and bad -- to the movement in the past couple of years. Microlending has become extremely popular, and as a result, an increasing number of commercial banks and for-profit institutions are now marketing loans to the poor. Many of these institutions have taken advantage of uneducated borrowers in the developing world and charge very high interest rates that are often unclearly stated in the terms of the loan. Leaders of the microfinance world believe that these kind of profit-seeking ventures are at odds with the underlying mission of microfinance, and the issue has sparked much controversy in the industry over the past year.

As part of the Microcredit Summit earlier this week, I listened in on a global conference call that addressed the need for greater transparency among global lenders in the microfinance market. The purpose of the call was to announce the launch of Microfinance Transparency, a non-governmental organization designed to publicly report the interest rates of lending institutions worldwide. The US-based initiative is headed by industry expert Chuck Waterfield, and is backed by Muhammad Yunus, founder of Bangladesh-based lending institution Grameen Bank, and by Summit Campaign director, Sam Daley-Harris. The organization already has a substantial list of endorsers, including co-founder and executive director of Kiva, Matt Flannery.

During the call, Waterfield described Microfinance Transparency as an "information clearing house," with the goal of establishing truth-in-lending standards to parties in both the developed and developing world. Several lending institutions -- that together represent more than 20 million borrowers -- have already agreed to report their interest rates to Microfinance Transparency. According to Waterfield, the first batch of data collected will be published on the organization's Website at the end of October. Ultimately, the site will become a searchable database for anyone seeking information on microfinance lenders.