Activists, aid workers, development experts and everyday folks have raved over microfinance in the past couple of years, specifically its ability to help impoverished entrepreneurs and small businesses like hair salons and grocery shops thrive in Africa, Latin America and other developing parts of the world.
But the beloved world of micro-lending has its ugly side. As The New York Times reported recently, large banks and financial institutions now dominate the lending field, charging up to 100% for very small loans (often under $1,000). These lenders are the new loan sharks, turning a trend of empowering disadvantaged businesspeople into a way to get rich quick.
Countries like Mexico and Nigeria, where demand for micro-loans surpasses the number of lenders, are hit the hardest. The average interest rate in Mexico is about 70% and in Nigeria, for those who borrow from the nation’s largest lender, 74%, compared to a 37% world average.
As the Times story quotes Chuck Waterfield, a proponent of microfinance accountability: “You can make money from the poorest people in the world — is that a bad thing, or is that just a business?” asked Mr. Waterfield of mftransparency.org. “At what point do we say we have gone too far?”
Photos of struggling entrepreneurs in Nigeria and Mexico via The New York Times