Microfinance Sector Tarnished?

Despite the popularity of microloans with deep-pocketed foundations and celebrities, the practice is taking on a more negative aura as banks and financial institutions with sizable profits join the field. Many are charging 100 percent interest in poverty-strapped countries like Nigeria and Mexico. Even Web sites like Kiva and Microplace admit they cannot always guarantee every interest rate they promise, often letting them float higher. “We created microcredit to fight the loan sharks; we didn’t create microcredit to encourage new loan sharks,” said Muhammad Yunus, the economist who won the 2006 Nobel Peace Prize for his work in microfinance. The debate over interest rates has now piqued the interest of the House Financial Services Committee, which is due to discuss microfinance’s potential downside in hearings this year.