BusinessWeek’s Steve Hamm has a good overview of the latest dust-up in the world of microfinance, where industry Top Dog Muhammad Yunus has started lashing out at for-profit microlenders like Mexico’s Compartamos, accusing them of "moving into the same mental mind-set as loan sharks".
This afternoon I got a press release from respected microfinance institution Acción, coming down strongly on the Compartamos side of the fight, and quoting the letter to our peers from Compartamos defending their high interest rates. But although Compartamos’s interest rates have come down a bit since last year, when I criticized the bank for placing shareholders above borrowers, I’m still far from convinced that the for-profit route is as socially beneficial as the likes of Acción would have us believe, especially in Mexico where it’s easy for small for-profit lenders to complacently let their interest rates drift up towards and even past the extortionate nationwide norms. Yes, Compartamos is right that by Mexican standards it’s not all that bad – but that’s precisely the problem, and it’s Mexican standards which need to be changed.
I have no problem with for-profit microlending in theory, but at the same time I think the burden of proof is on the for-profit microlenders to demonstrate that they can deliver better, cheaper services to the poor than their non-profit counterparts can. No one has done that yet, and until they do, I’ll still prefer the non-profit model to the for-profit model.