New Delhi: In an attempt to protect poor borrowers from extortionate interest rates, Bangladeshi Nobel Peace Prize winner Mohammad Yunus joined in launching a new NGO, MicroFinance Transparency, at a microcredit summit in Indonesia.
MicroFinance Transparency aims to make public the interest rates charged by microcredit lenders around the world, posting them on its web site.
“Microfinance should be an opportunity to help people get out of poverty, not to make money,” Yunus said in a media call from Indonesia. MicroFinance Transparency would, he said, “allow people to compare which loan is cheaper and which is better for them.”
The new NGO has been launched in response to the growing perception of microfinance as a new asset class. Private investments in microfinance have more than tripled in the last three years, and in April 2007, a Mexican microfinance institution, Compartamos, went public with a valuation of $1.4 billion. Compartamos fuelled its profits with very high annual interest rates on its microloans, prompting Yunus to say: “Compartamos’ business model, and the message it is projecting in the global capital markets, is not consistent with microcredit. There is no justification for interest rates in the range of 100%.”
MicroFinance Transparency has already enlisted microfinance institutions representing almost 25 million borrowers to report interest rates. “Making rates public is absolutely important, so this move is welcome,” said Rajkamal Mukherjee, vice-president of microfinance at Access Development Services. “But more important is to devise a clear formula, a basic calculation framework to structure rates, and to show add-ons like training or group insurance as having separate value.”