Public Comment

Commentary: The Problems With Micro-Lending

By Sally Williams
Friday January 26, 2007

The commentary in the Dec. 22 issue of the Daily Planet, while making some commendable points, fails to point out some of the problems and new twists to micro-lending. 

As a former advisor to central European delegations to the U.N. Beijing conference on Women and to the U.N. Development Program on micro-lending in central Asia, I would like to point out that the vast majority of the success rates of the micro-credit programs such as Yunas’s Grameen Bank are based on loan payback rates rather than whether the participating women have actually gotten out of poverty. In other words it’s the success of the lender, not the recipient. Even Yunus admits that he has probably only helped 50 percent of the borrowers obtain a tin roof, mosquito netting, clean water, and a latrine; but that he has , in his words, proven that “The poor can be reliable borrowers even at high interest rates.” 

As Krishna Bhattacharjee pointed out in his commentary, micro-lending is now being implemented in 50 countries; but he did not explain that the conflict between do-gooders and profit minded do-gooders that defines the current debate in this new profitable market. Micro-financing has become a global market with micro-finance futures that tend to serve the “less poor” rather than serving as a channel out of desperate poverty. Banks such as Citigroup and Duetsche Bank have gotten into the game of helping the “un-banked” become new clients. Their goal is financial inclusion, not reducing poverty. Carlos Labrathe, CEO of Compartamos, the McDonald’s of village banking in Mexico, predicts that in five years 80 to 90 percent of all micro-finance institutions will be for-profit institutions. 

Compartmos borrowers pay an annual rate of a hundred and five percent in interest and taxes and some are higher than a hundred and 20 percent. The Mexican Government is now requiring Compartamos to explain the hidden cost to clients. (New Yorker, Oct. 30, 2006) The women that I worked with through UN contacts wanted some modicum of business training such as how to judge which market needed which product. Most of the wee loans at usury interest rates go to women for activities that require the involvement of whole families. Paying the high interest from earnings of a garden plot, a small kiosk, a phone service, or basket making generally requires a 16-hour day and help from family members. Women wanted to become valued as good credit risks as men are valued so they could borrow money individually from local institutions. I won’t go into how belittled many women felt having to become a member of a group to get a loan rather than being respected as an individual because it places a tremendous burden on the women in the group to pay the interest for a member who becomes ill or has a problem in her family. (As the New Yorker article pointed out, some women unable to payback loans have committed suicide.) We regulate predatory lending practices in some parts of the United States. These overseas lending programs are entirely unregulated and borrowers need protections. (Bruck, Connie, “Millions for Millions” New Yorker, Oct. 30, 2006, p.62) 

There are some good programs out there that offer training, dignity and hope: Pro Mujer in Latin America, Kickstart, the Village Enterprise fund in Africa; but until all programs are evaluated for the effect the program has on the borrower rather than merely the payback rate, we will never know if micro-lending/financing is doing more harm than good. 


Sally Williams is a Berkeley resident.