Wednesday, April 14, 2010

News flash: Microfinance doesn't solve everything


Read this article in the Times yesterday that talks about how some microfinance organizations are no better than the predatory lenders they were first developed to replace.  It gives some particularly egregious examples of microfinance institutions (MFIs) that charge outrageous rates of interest, and then says, "Unwitting individuals, who can make loans of $20 or more through Web sites like Kiva or Microplace, may also end up participating in practices some consider exploitative."

Then it goes on to talk about the "fierce debate over whether microloans actually lift people out of poverty, as their promoters so often claim."  This "fierce debate" is summed up in the rather mild quote, “'It is not the single transformative tool that proponents have been selling it as, but there are positive benefits.'”

Quite the expose.

Here's the thing: microfinance is a tool.  That's all it is.  Some people use it well and rightly, and some use it poorly, and some use it greedily.  I hate seeing ALL microfinance tarnished as evil and a failure when --aha!--it is discovered that some people have evil motives.  It's like arguing, dare I say, that journalism is a failure when some people use it for propaganda.

I am tremendously sorry that the implication is that people should stop participating in microlending unless they want to be an unwitting accessory to loan sharking.  One of the comments on the article said

Thank you for enlightening me about Kiva. I saw some American asking for a loan for her clothing design business on there, lol. Does anyone have suggestions as to what they consider a good micro-lending org to donate or lend to? Ideally, one that helps poor entrepreneurs start a business, but doesn't make them functionally existant on greater and greater loans?

Which shows me that this article did not enlighten this reader at all.  Kiva is not in itself a microlending organization; it partners with other MFIs, some better than others. 

So how do you know?  Personally, I would loan to any BRAC, knowing their mission statement and how they operate.  Also, if you are loaning through Kiva and have this concern, go to the Field Partner page and check out the different organizations.  You can  take a closer look at their practices through their MIX (Microfinance Information Exchange) profile--and I probably wouldn't loan to any MFI that didn't have one.

And sometimes you just do the best you can with the information you have.  The organizations we depend upon to do good don't always do so.  You do your research; you hold organizations accountable as best you can; if you find they aren't able to accomplish what you want them to do, you find someone else who can.  And don't be surprised when you discover that even the best and most noble enterprise is not the savior of the world.


icearc said...

I thought the increase in the number of microfinance institutions would result in better terms for the customer. But instead some have resorted to practices that point to existence of possible cartels especially by the big banks which have began buying MFIs. And with poor regulatory framework, at least in Uganda, some of these are reaping the poor off.

Laura Toepfer said...

Yeah. When I was there, I got highly suspicious of the MFIs that bought a lot of radio advertising. Again, sigh. It's so rotten seeing poor people be exploited yet again. Not surprising but hugely disappointing.