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Microcredit - now usury’s respectable face

“Not credit as a means to advance a positive social outcome, but credit as a means to create the profit-spinning foundation of a company.”

See the Toronto Star’s report here on what has happened to the microcredit dream three decades after it began.

“The concept of microcredit is being blatantly abused. Now any traditional loan shark anywhere can easily claim that they are the promoters of microcredit. What we created to fight loan sharks now is being used to give loan sharks a respectable identity.”

Nobel Peace Prize winner Muhammad Yunus, founder of microcredit pioneer Grameen Bank, warning earlier this year that turning microcredit into a high-profit, high growth business would devastate the poor.

(Separately, Prof. Yunus has become mired in controversy after Norway last week began investigating claims Grameen had diverted aid given by Oslo for microcredit projects to other, commercial, parts of the bank. The bank denies the claims).

“About 40 million people in Bangladesh have availed of loans from microfinance organizations whose interest rates can be anywhere between 20-40%. There are some micro financers who also charge interest rates of more than 50%.”

Said Khandakar Muzharul Haque, executive vice chairman of Bangladesh’s Micro Credit Regulatory Authority, on why new regulations have been imposed on microfinance firms, capping interest charges.

See comments by both in the the Wall Street Journal here. 

"We oppose the interest rate cap. It will be hard for micro-lenders to stay afloat charging just 27 percent interest."

Mosharraf Hossain, head of a microfinance industry association in Bangladesh,   responds.

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