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Microcredit lenders urged to improve transparency

Published on August 12, 2008

Lenders to the world’s poor should disclose how much they charge their borrowers, a global network of microcredit agencies said on Monday, urging more transparency and greater protection of the poor.

Click here to read the Reuters article

Microcredit lenders urged to improve transparency

Lenders to the world’s poor should disclose how much they charge their borrowers, a global network of microcredit agencies said on Monday, urging more transparency and greater protection of the poor.

┬áThe proposal is backed by Nobel Peace Prize winner Muhammad Yunus, who set up Bangladesh’s Grameen Bank and is regarded as the founder of the microcredit movement.

More and more commercial banks have gone into microcredit in pursuit of new customers and higher returns. In some countries, such institutions are poorly regulated and free to charge above-market annual interest rates — of as much as 90 percent, in some extreme cases.

Microcredit Summit Campaign urged lenders to disclose their charges to a new, U.S.-based independent microfinance organisation. The Washington DC-based network of microfinance institutions kicked off its annual meeting on Monday on the Indonesian resort island of Bali.

“Investors, donors, policymakers, researchers and practitioners will immensely benefit from” having access to the interest rate data, Yunus was quoted as saying in a statement by the network.

The new global scheme, called MicroFinance Transparency, was launched following controversy over high lending rates to the poor who often lack information or financial expertise.

“In the past few years, hundreds of for-profit companies have begun financing and marketing loans to the poor in developing nations,” the global network of microfinance firms said.

It added that the companies have been “attracted by near-monopoly lending environments and misleading pricing systems compounded by borrowers’ frequent lack of understanding of the financial details of credit transactions.”

The global network said participation in the scheme was voluntary but added that investors, donors and practitioners would be able to benefit from public information on lending rates charged by microcredit lenders around the world.

The information, published on the Web site www.mftransparency.org, will disclose repayment schedules for each product that participating microfinance institutions offer and will calculate the prices of those products in annual percentage rate terms.

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