Economic Development

Microfinance Needs Regulation

The volatile combination of profit-seeking microfinance companies, minimal competition, and vulnerable borrowers has opened up dangerous potential for exploiting the poor. The microcredit industry needs to be regulated—through policies that address transparency, high interest rates, and abusive loan recovery practices.

Since Muhammad Yunus pioneered the concept of microcredit in 1976 and founded the Grameen Bank in Bangladesh, microcredit has become a major movement. Worldwide, 3,552 microcredit institutions provided loans to 155 million clients, finds the State of the Microcredit Summit Campaign Report 2009. Grameen Bank alone disbursed more than $5 billion in microloans over the last 10 years, and it now has 7.7 million borrowers. According to the Grameen Bank website, microcredit is “offered for creating...


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Notes

1 Gde Anugrah Arka,"Microcredit Lenders Urged to Improve Transparency," Reuters,
July 28, 2008.

2 Sudhirendar Sharma,"Death by Microcredit," The Times of India, Sept. 16, 2006.

3 Carlos Danel and Carlos Labarthe, "A Letter to Our Peers,"; June 2008. Available at
http://www.compartamos.com.

4 Richard Rosenberg, Adrian Gonzalez, and Sushma Narain, "The New Moneylenders:
Are the Poor Being Exploited by High Microcredit Interest Rates?" Occasional Paper 15, Washington, D.C.: Consultative Group to Assist the Poor, February 2009.

5 Nimal Fernando, "Understanding and Dealing with High Interest Rates on Microcredit"
Manila: Asian Development Bank, May 2006.

6 "Strengthening Consumer Protection." Available at http://financialstability.gov/
docs/regulatoryreform/strengthening_consumer_protection.pdf
.

7 Akhand Tiwari, Anvesha Khandelwal, and Minakshi Ramji, "How Do Microfinance
Clients Understand Their Loans?" Chennai, India: Centre for Micro Finance/
Institute for Financial Management and Research, October 2008.

8 Rosenberg, Gonzalez, and Narain, "The New Moneylenders: Are the Poor Being Exploited
by High Microcredit Interest Rates?"

9 Chuck Waterfield, "Implementing Pricing Transparency in Microfinance,"
MFTransparency Newsletter, 2009.

10 Subrata Kumar Mitra,"Exploitative Microfinance Interest Rates," Asian Social
Science
, 5(5), May 2009: 87-93.

11 ";The New Moneylenders: Are the Poor Being Exploited by High Microcredit Interest
Rates?"

12 Waterfield,"Implementing Pricing Transparency in Microfinance.&"

13 Fernando, "Understanding and Dealing With High Interest Rates on Microcredit."

14 Brigit Helms and Xavier Reille,"Interest Rate Ceilings and Microfinance: The Story
So Far,&" Occasional Paper 9, Washington, D.C.: Consultative Group to Assist the
Poor, September 2004.

15 "The Crushing Burden of Microcredit," France 24, April 4, 2008. Available at http://
http://www.france24.com/en/20080404-bangladesh-burden-microcredit-caring-grameenbank-
mohammed-yunnus.

16 Tiwari, Khandelwal, and Ramji, "How Do Microfinance Clients Understand Their Loans?"

17 The Pocantico Declaration is available at http://www.accion.org/Document.Doc?id=442.

18 Muhammad Yunus, "Lifting People Worldwide Out of Poverty," Knowledge@
Wharton
, May 27, 2009.