What Price Microfinance?
The late Maxine Udall, girl economist:
If you’re in the micro-finance business to make money, you should probably resign yourself (like those MBA students I described above) to making less money. You will have entered into a business where it is not OK to shift risk to those least able to bear it. You will have entered a business with dual objectives and one of them imposes an ethical contraint on your returns.
You get to charge higher interest rates because your clientele are high-risk, but you don’t get to lend to just anyone regardless of their ability to pay and then claim that you’re doing good by making credit available to more people. Nor do you get to charge any old interest rate you feel like charging. …
Spreads in excess of Yunus’ 15 percentage points for for-profit micro-financiers can only signal either too much risk or too much profit. Either way, it’s too much when the dual objective is profits and lifting people sustainably out of poverty.
Failure to recognize the above and to structure micro-finance responsibly to achieve the twin goals would put micro-financiers in the same ignominious company as sub-prime lenders, liar and interest-only loans, and all the wonderful, creative, entrepreneurial guys who gave us our current economic recession.
I put some of my inheritance from my grandmother’s death into microfinance-type situations, hoping to remember her better characteristics each time a woman in a developing country needs funds for a beauty salon (my late grandmother’s favorite indulgence).
The organizations between my (living?) donation have very different organizational and operational costs—learning about them has been more time-consuming than I meant to take on. But it’s interesting reading from an economics versus ethics perspective as Maxine illustrates, above.
