Don´t give microfinance a blanket approval!

Sir in “Dhaka´s spiteful attack on Yunus” March 3, you write “microlenders have small margins in spite of their high interest rates… their loans are cheaper than those provided by traditional money lenders, and free of the social conditions attached to credit in feudal relationship” and I must ask… how on earth do you know that?

As a former Executive Director of the World Bank and very interested in the subject I have closely followed the debate on microfinance, and I have quite often found the need to remark on the fact that most evaluations of the sector are geared to establish the profitability of micro-finance and very little or nothing is said about for instance the rates the micro-borrowers have to pay.

There is much good in microfinance but there is also an enormous amount of hypocrisy, not the least among a crowd of those who make a career and a living out of being microfinance groupies. If you like the concept of microfinance, as I indeed do, then hold it to strict standards and do not give it a blanket approval. (Or otherwise accept it as any other kind of non-holy business).

And of course this has nothing to do with approving or condoning whatever is being done to Mohammed Yunus the founder of Grameen Bank, something of which I know too little about to opine.

There are indeed many financial issues that are up for long overdue reviews

Sir Christopher Caldwell in “Time for some morality trades” December 20, discusses whether the whole financial system should be up for a moral review. If so may I suggest we start by looking into the whole concept of placing borrowers in special high-interest rates corrals, with the help of tools that are not overly transparent, and then pushing the corralled into an impoverishing anticipation of consumption, all in order to make a profit from financial intermediation. From a societal point of view, without even discussing morality, driving an unnecessary wedge between people does not seem the smartest thing to do.

By coincidence in the same issue Dr. Milford Bateman in “Microfinance’s ‘iron law’ – local economies reduced to poverty” suggest that those lending money for marginal and most often informal entrepreneurial activities are digging the poor deeper in the hole they’re in, since those resources could have been used to finance some much better development ladders. Indeed this possibility and that for the development community must sound as a real shocker, also qualifies the microfinance sector for an urgent moral and practical review.