Wednesday, April 14, 2010

Microfinance: Philanthropy, or Usury With A Halo?

"In recent years, the idea of giving small loans to poor people became the darling of the development world, hailed as the long elusive formula to propel even the most destitute into better lives," begins an article in today's New York Times that you can read HERE. "But the phenomenon has grown so popular that some of its biggest proponents are now wringing their hands over the direction it has taken." 

"Drawn by the prospect of hefty profits from even the smallest of loans, a raft of banks and financial institutions now dominate the field, with some charging interest rates of 100 percent or more... The fracas over preserving the field’s saintly aura centers on the question of how much interest and profit is acceptable, and what constitutes exploitation."

1 comment:

  1. This is right in line with other micro loans. It's unfortunate that this service has gone the way of payday loan sharking. You ever see the rates charged on pay check loans? 30%, 50% APR? Try between 400-800%! It's a shame that actual banks are wiping this philanthropic gesture out. Or is it simply the result of an actual economy growing where we are past the pt of "micro" loans being even reasonable? Once people wise up and everyone starts wanting to start thier own business it's no longer possible for that model to exist. Somewhat of a double edged sword in economic development.