The Problem Brewing In Microlending

There’s been a long running rift in the micropayments world, with Muhammad Yunus, the Nobel Prize winning founder of Grameen Bank, on one side and for-profit counterparts such as Compartamos on the other side. Yunus has accused these for-profit lenders of being nothing more than loan sharks. Compartamos defends themselves and say that they create real value. That hasn’t stopped Yunus from promoting a global truth-in-lending standard with the creation of an organization to monitor banks’ behavior.

In an effort to head off a potential crisis in the fast-expanding microfinance industry, its leaders are adopting global truth-in-lending standards and creating a system for comparing loan terms offered by competing lenders. To manage the effort, a new self-monitoring organization, MicroFinance Transparency, is being set up as the industry’s policeman. The goal is to prevent companies from taking advantage of poor people with high interest rates and misleading credit offers.

The initiative was announced on July 28 at a microcredit conference in Bali by Chuck Waterfield, a professor at Columbia University who spearheaded the initiative, and Nobel Peace Prize winner Muhammad Yunus, who launched the microcredit revolution in Bangladesh 30 years ago with his Grameen Bank. “Microfinance emerged as a struggle against loan sharks, so we don’t want to see new loan sharks created in the name of microcredit,” Yunus tells BusinessWeek.

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