logo
Donate
    • Magazine
    • Membership
    • Donate
  • Racial Justice
  • Economic Justice
    • Collections
    • Glossary
  • Climate Justice
  • Health Justice
  • Leadership
  • CONTENT TYPES
  • Magazine
  • Webinars
  • Membership
  • Submissions

Microlenders and the Microloansharks Who Love Them

The Editors
April 16, 2010

Why should we be surprised that all-but-loansharking-loansharks have apparently moved into the formerly charitable sacred cow of microlending? Commercial banks and finance firms are only 39 percent of the microfinance institutions in the world (NGOs are 36 percent and credit unions and rural banks are 25 percent), but their microlending serves 60 percent of the clients.

Why would they be glomming onto the idea that Grameen’s Nobel Peace Prize laureate, Mohammad Yunus pioneered? Banks have figured out how to get “hefty profits from even the smallest of loans,” according to an April 13th New York Times article, charging interest rates of 100 percent or more. According to the nonplussed Yunus, “We created microcredit to fight the loan sharks; we didn’t create microcredit to encourage new loan sharks. Microcredit should be seen as an opportunity to help people get out of poverty in a business way, but not as an opportunity to make money out of poor people.”


SUBSCRIBE | Click Here to subscribe to THE NONPROFIT QUARTERLY for just $49 >>


Mexican microlender Te Creemos (“We Believe You”) charges an average annual interest rate of 125 percent on its micro loans; Mexico’s nationwide average is 70 percent compared with the global average of 37 percent in interest and fees. How do they get away with that? Because they can. There’s no real regulatory oversight over international support for microlending. The borrowers—poor people in developing countries—sometimes don’t really know what they’re paying. For example, Compartamos in Mexico charges a rate of 82 percent, but one borrower for a T-shirt factory was “hazy” about what she was paying on her loans.

How does the nonprofit sector enter into this? One way is that “donors” can make loans to microlenders through highly lauded nonprofit Web sites such as Kiva, where Kiva lenders can make zero percent interest rate loans through Kiva’s online platform (among others, one of Kiva’s creators was an executive with PayPal).

Sign up for our free newsletters

Subscribe to NPQ's newsletters to have our top stories delivered directly to your inbox.

By signing up, you agree to our privacy policy and terms of use, and to receive messages from NPQ and our partners.

Kiva promises that their loans will not go through microlenders that charge excessive interest rates, but the Times found Kiva working through Life Above Poverty Organization (LAPO), backed by DeutscheBank and the Calvert Foundation, making loans at 83 percent interest, though Kiva’s site said that the LAPO rate was only 57 percent (Kiva changed the online information after a call from the Times reporters).

Kiva’s lenders may be just as surprised as borrowers from Kiva-capitalized microlenders. Witness this comment posted on the New York Times blog: “I loan through Kiva and I didn’t know that these other organizations were charging interest. I don’t like that at all. I think of my loans as donations that I keep recycling to different people and I don’t see why I should be loaning money to people who are then charging high interest rates, especially since I voluntarily give a 10% chunk to Kiva each time.”

Kiva, by the way, is not the only nonprofit portal connected to microloansharks. Grameen’s Yunus is beside himself trying to draw a line between the microlenders and the microloansharks.

So what’s really happening? Partly, this is an industry that was oversold as the cure for poverty, and it’s clearly not. As Dean S. Karlan, a professor of economics at Yale University noted, “It is not the single transformative tool that proponents have been selling it as, but there are positive benefits.” But partly because it has been oversold as something close to a panacea, it has not had the kind of critical oversight that it should have, allowing loan sharks to swim in. Because U.S. foreign aid often goes to help microlenders, expect Congressional hearings very soon.

Our Voices Are Our Power.

Journalism, nonprofits, and multiracial democracy are under attack. At NPQ, we fight back by sharing stories and essential insights from nonprofit leaders and workers—and we pay every contributor.

Can you help us protect nonprofit voices?

Your support keeps truth alive when it matters most.
Every single dollar makes a difference.

Donate now
logo logo logo logo logo
See comments

You might also like
Cancer Research in the US Is World Class Because of Its Broad Base of Funding—with the Government Pulling Out, Its Future Is Uncertain
Jeffrey MacKeigan
Endowments Aren’t Blank Checks—but Universities Can Rely on Them More Heavily in Turbulent Times
Ellen P. Aprill
US Colleges and Universities Have Billions Stashed Away in Endowments—a Higher Ed Finance Expert Explains What They Are
Todd L. Ely
Nonprofits Under Fire: How the IRS Can—and Cannot—Revoke Federal Tax-Exempt Status
Jeffrey S. Tenenbaum, Esq.
Providence Nonprofits Reeling from Funding Cuts and Threats (And, Organizations—What You Can Do!)
Cynthia M. Gibson
Supreme Court Considers Whether States May Prevent People Covered by Medicaid from Choosing Planned Parenthood as Their Healthcare Provider
Naomi Cahn and Sonia Suter

Upcoming Webinars

Group Created with Sketch.
May 27th, 2:00 pm ET

Ask the Nonprofit Lawyer

Register
Group Created with Sketch.
June 26th, 2:00 pm ET

From Performance Management to Mutual Commitment

Fostering a Culture of Joyful Accountability

Register

    
You might also like
A female scientist wearing a turquoise protective hair cap, yellow safety goggles, blue gloves, and a blue protective gown peers intently into a black microscope while carefully holding a pipette.
Cancer Research in the US Is World Class Because of Its...
Jeffrey MacKeigan
A piggy bank wearing a graduation hat and standing on a pile of cash, symbolizing how endowments for academic institutions can be accessed in difficult times.
Endowments Aren’t Blank Checks—but Universities Can Rely...
Ellen P. Aprill
A building on Harvard University’s campus in Cambridge, MA, the wealthiest university in the world.
US Colleges and Universities Have Billions Stashed Away in...
Todd L. Ely

Like what you see?

Subscribe to the NPQ newsletter to have our top stories delivered directly to your inbox.

See our newsletters

By signing up, you agree to our privacy policy and terms of use, and to receive messages from NPQ and our partners.

  • About
  • Advertise
  • Careers
  • Contact
  • Copyright
  • Donate
  • Editorial Policy
  • Funders

We are using cookies to give you the best experience on our website.

 

Non Profit News | Nonprofit Quarterly
Powered by  GDPR Cookie Compliance
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.

Strictly Necessary Cookies

Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings.

If you disable this cookie, we will not be able to save your preferences. This means that every time you visit this website you will need to enable or disable cookies again.