The World Press comment on the MCSC Summit!

Lending Groups for Poor Agree To Disclose Rates
As microcredit sector becomes commercial, priority issues arise
Associated Press July 29, 2008
BANGKOK -- Eleven microfinance groups that together serve nearly 26 million people agreed Monday to publicly report their annual interest rates, a move many hope will empower the world's poorest borrowers as the once-charitable sector becomes increasingly commercialized.
"If you are making profits you are moving into the same mental mind-set as loan sharks," Nobel Peace Prize winner Muhammad Yunus said by phone from Bali, Indonesia, where he is attending the Microcredit Summit Campaign conference, which opened Monday.
When Mr. Yunus began making $27 loans to women in Bangladesh three decades ago, he hoped to rescue the poor from usury. The new language of microfinance, which turns on words like "return on equity," today weighs heavily on him.
He believes interest rates should be set to cover costs, not maximize profits.
"Microcredit is about helping poor people get out of poverty," said Mr. Yunus, whose pioneering bank, Grameen, has already signed on to the new MicroFinance Transparency initiative.
The rush of new entrants into the microcredit market has created a welter of offerings, but lack of standardized reporting makes it hard for borrowers to figure out how to get the best deal.
"Clients are at a significant disadvantage," said MicroFinance Transparency founder Charles Waterfield. He aims to bring truth-in-lending standards to the developing world, by publishing standardized annual interest rates on the Internet. The data from lending institutions will be self-reported.
The initiative, a U.S. nonprofit, is still cementing funding and plans to start publishing country-specific data on its Web site in October.
The push for disclosure comes at a time of intense debate within the field, which pits privatization advocates against those who believe you can save the world or make money, but not do both at the same time.

BUSINESS WEEK
Setting Standards for Microfinance
Muhammad Yunus backs an effort to make available the rates and fees charged on small loans to poor people
by Steve Hamm
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.
If the industry doesn't curtail abuses and confusion, it faces the prospect of government crackdowns and donor funds drying up. Since Yunus pioneered the idea of lending small amounts of money to poor people without demanding collateral, the phenomenon has spread worldwide. These days, thousands of organizations are making loans to tens of millions of borrowers—usually to help them set up or expand small businesses.
Reports of High Interest Rates
Today, there are basically two kinds of microlenders: nonprofit outfits like Grameen and for-profit lenders, including traditional banks that are making forays into this market.
Starting last year with an exposé of lending practices in Mexico by BusinessWeek (12/13/07), a steady drumbeat of articles critical of high interest rates charged to poor people have appeared in various publications. Yunus said he was alarmed by the direction the industry was taking (BusinessWeek, 12/13/07). "I felt so bad," he says. "I made this thing and they came in and abused it. What a way to discredit a whole idea!"
Waterfield, who has been researching and writing about microcredit for decades, said he became concerned about the industry after Mexico's Banco Compartamos (BMOSF), which had once been a nonprofit organization, switched to a profit-seeking enterprise, and then went public early last year. The IPO netted a windfall for its backers and attracted Wall Street money.
There are several sticky issues here. Organizations that seek profits and rich returns for investors have to charge interest rates high enough to produce those yields. Compartamos, for instance, charges more than 100% annually on its typical loans, according to Waterfield's analysis. In addition, Waterfield says, much of the microcredit industry markets loans to poorly educated borrowers in ways that are hard to understand and tend to underplay the impact on their family finances. "Organizations that want to make a lot of money can set a very high price that doesn't look like a high price," says Waterfield.
Compartamos defends its practices. The bank published a 14-page "Letter to our Peers" in early July explaining why it charges what it does. The letter argues that Compartamos must set high interest rates because its operational costs are high, $152 per client per year on loans that average just $450.
"A plea for lower interest rates is in fact a plea to increase the size of our loans significantly. Doing that can only have two outcomes: the overindebtedness in our clients or moving to a different segment of the market, which amounts to mission drift," the letter says. The bank argues that it's better for poor people to have access to credit than not—even if the interest rates are high.
How It'll Work
MicroFinance Transparency will collect information from all microcredit lenders and store it in a database on its Web site, mftransparency.org, that's searchable via the Web by anybody who is interested. (The group hasn't said when that information will be posted on its site.) All of the loans will be converted into annual percentage rates based on the true cost of the loans. In addition, all of the costs associated with the loan, including any additional fees charged by the lenders, will be rolled into the total. Waterfield says most microcredit organizations will submit their data, and, for those that don't, the information will be collected by gathering contracts from their borrowers and crunching the numbers.
These days, most microcredit organizations market their loans using a monthly interest rate, say 2% to 4%. That may sound reasonable to people used to paying even higher rates to village loan sharks, but the lenders don't spell out to borrowers that these are flat rates—meaning they're paid on the total loan amount, even as the borrower pays down the principal during the year. Yunus' Grameen Bank operates differently. It charges a 20% annual rate on a declining basis. Each week, when Grameen borrowers make their payments, the principal of their loan and the basis of future interest payments gradually declines. The APR of a Grameen loan is actually about 10% per year.
One of the dangers to the microcredit industry is that countries may put limits on the amount of interest the organizations can charge borrowers. Already, Nicaragua, Ecuador, and South Africa have set ceilings. While that may sound like a reasonable move, if rates are set at unsustainable levels it could smother some legitimate microlending activity. There's truth in what Compartamos says: It's costly to make and service small loans to poor people. And industry leaders say they need to charge more than what a typical bank in a developed nation would charge for a small-business loan. If they can't charge enough to cover their costs—much less generate profits, for those that seek them—they won't be able to stay in business.
Lenders Signing Up
By the time the new initiative was announced, more than 15 sizable microcredit organizations had signed statements endorsing it. The roster included Grameen and BRAC, big Bangladeshi organizations, and SKS Microfinance, a fast-growing, for-profit outfit in India. "We're very supportive of transparent pricing. It's part of treating your customers fairly," says Vikram Akula, SKS' chief executive. SKS already complies with the standards laid out by MicroFinance Transparency. Its rates vary from 24% to 28% on a declining basis, and the APR terms are spelled out on each borrower's record book. Akula predicts that most microfinance institutions will comply.
Some industry watchers are calling for even more extensive checks and balances. "Transparent pricing should apply to all financial services, not just loans," says Elizabeth Littlefield, chief executive of the Consulting Group to Assist the Poor. "Many poor people are aggressively sold multiple, expensive insurance policies, or are paying excessive fees for remittances." Still, she says of microcredit transparency: "We applaud the effort."
Hamm is a senior writer for BusinessWeek in New York.









Muhammad Yunus Joins Launch of Project to Help the World's Poorest Borrowers Avoid High Interest Rates
NUSA DUA, Indonesia, July 28 /PRNewswire-USNewswire/ -- Nobel Peace
Prize Laureate Muhammad Yunus joined in announcing the launch of
MicroFinance Transparency, a non-governmental organization designed to make
public the interest rates charged by microcredit lenders around the world,
offering a much-needed form of consumer protection to the world's poorest
borrowers.
Professor Yunus joined in introducing the US-based, independent NGO
here at the annual gathering of the Microcredit Summit Campaign, a
Washington, DC-based network of more than 3,600 of the world's leading
institutions providing tiny loans to 133 million poor clients, mostly in
developing nations. Also attending the conference were Indonesian President
Susilo Bambang Yudhoyono, Honduran President Manuel Zalaya Rosales, South
African First Lady Mrs. Zanele Mbecki, and former Peruvian President
Alejandro Toledo.
Following a year of controversy in which some for-profit lenders have
been reportedly charging borrowers in the developing world as much as 90%
in annual loan interest, Dr. Yunus, "father" of the microcredit movement,
noted the "strong, clear and important need" for MicroFinance
Transparency's mission to ensure transparency and fairness. The issue is
expected to be a hot topic at the three-day conference, largely because in
the past few years, hundreds of for-profit companies have begun financing
and marketing loans to the poor in developing nations, attracted by
near-monopoly lending environments, and misleading pricing systems
compounded by borrowers' frequent lack of understanding of the financial
details of credit transactions.
Dr. Yunus praised MicroFinance Transparency's founder, Charles
Waterfield, noting that institutions representing more than 20 million
borrowers, including the Bangladesh-based Grameen Bank he founded in 1976,
have already agreed to report their interest rate information to
MicroFinance Transparency, and dozens of additional signatories are being
added each week. While participation is voluntary, he said, "the idea is
something like the intention behind the Truth-in Lending legislation in the
USA," where laws prevent lenders from "advertising one figure as an
interest rate while using a completely different rate for calculating what
the client is actually charged."
"Investors, donors, policymakers, researchers and practitioners will
immensely benefit from having access to the interest rate data MicroFinance
Transparency post's on its website, http://www.mftransparency.org," said Dr.
Yunus, who also serves on the Executive Committee of the Microcredit Summit
Campaign. Without the new service, "an interest rate might be quoted by one
organization as 10% and another organization as 15%. Naturally people think
10% is cheaper. But it is not -- if the 10% is charged as a flat rate
[through the life of a loan] while the 15% is charged on a declining
basis," he said.
Lancaster, PA-based Mr. Waterfield, an economist widely known as the
developer of Microfin, a business planning tool used worldwide by
microfinance institutions, explained that the new agency is being launched
after a year of dialogue within the microfinance community. Waterfield
said, "The major benefit of MicroFinance Transparency is that it allows all
microfinance institutions to become transparent at once. MicroFinance
Transparency levels the playing field."
Sam Daley-Harris, Founder and Director of the Washington, DC-based
Microcredit Summit Campaign, joined in launching the new organization,
noting that "truth-in-lending is a norm in the industrialized nations that
should be adopted by developing world lenders, and MicroFinance
Transparency is just what is needed," he said.
In addition to leading microcredit lenders, MicroFinance Transparency
has been endorsed by social entrepreneurs and academics around the world,
including executives of San Francisco-based Kiva Microfunds, Bethesda,
MD-based Calvert Social Investment Foundation, and the Consultative Group
to Assist the Poor (CGAP), a Washington, DC, consortium of bilateral and
multilateral donor agencies that also advises the World Bank.
Former U.S. Controller of the Currency Eugene A. Ludwig said he would
"encourage microfinance institutions to consider endorsing the mission" of
MicroFinance Transparency. "Transparency is vital to free markets.
Fundamentally, it ensures the ability of all market participants --
borrowers and lenders alike -- to determine the true costs of financial
services. By agreeing to use a shared vocabulary to describe the available
range of prices for financial services, lenders can ensure clear,
consistent, accurate and fair disclosure. This can only be positive for
microfinance institutions and their customers," said Mr. Ludwig, Founder
and CEO of Washington, DC-based Promontory Interfinancial Network.
A full list of endorsers as of July 23, 2008, follows:
Microcredit Lending Institutions
Muhammad Yunus, Managing Director, Grameen Bank, Bangladesh. Total
clients: 7.41 million
Fazle Abed, Chairperson, BRAC, Bangladesh. Total clients: 4.55 million
Shafiqual Haque Choudhury, President, Association for Social
Advancement (ASA), Bangladesh. Total clients: 5.43 million
Vikram Akula, Chief Executive Officer, Swayam Krishi Sangam Foundation
(SKS), India. Total clients : 1.87 million
Musuku Udaia Kumar, Managing Director, Share Microfin Limited, India.
Total clients: 989,637
J.S. Tomar, Managing Director, CASHPOR Micro Credit, India. Total
clients: 173,776
Executive Director, TSPI Development Corporation, Philippines. Total
clients: 134,847
Jayshree Vyas, Managing Director, Shri Mahila Sewa Sahakari Bank, Ltd.,
India. Total clients: 64,000
Roshaneh Zafar, President, KASHF Foundation, Pakistan. Total clients:
295,275
Gregory Casagrande, South Pacific Business Development Foundation,
Samoa. Total clients, 18,000
Donors and Social Entrepreneurs
Elizabeth Littlefield, Director and CEO, The World Bank--CGAP,
Washington, DC
Shari Berenbach, Executive Director, Calvert Social Investment
Foundation, Bethesda, MD
Matt Flannery, Co-Founder and Executive Director, Kiva MicroFunds, San
Francisco
Jonathan Lewis, CEO, MicroCredit Enterprises, Sacramento, CA
Minh Huy Lai, Chief Operating Officer, PlaNet Finance, Paris
Kamal Hyat, Chief Executive Officer, Pakistan Poverty Alleviation Fund
Johannes Sannesmoen, Microfinance Director (retired), Stromme Memorial
Foundation, Norway
Art Avedisian, Executive Director, Cygma Financial
Networks of Microcredit Lenders
Sam Daley-Harris, Director, Microcredit Summit Campaign
Alex Counts, President and CEO, Grameen Foundation USA
Peter Greer, President, Hope International
Christopher Dunford, President, Freedom from Hunger
Bambang Ismawan, Secretary General, Gema PKM. Indonesia.
R.M. Malla, Chair, Small Industries Development Bank of India
Shankar Man Shrestha, CEO, Rural Microfinance Development Centre Ltd.,
Nepal Ruben de Lara,
Academic/ Consultants
Eugene A. Ludwig, Chair, Promontory Interfinancial Network, former
Comptroller of the Currency, and Co-Chair of MCSC Council
Dale Adams, Consultant and Professor Emeritus, Ohio State University
Malcolm Harper, Emeritus Professor, Cranfield School of Managment, UK
David Miller, Board of Overseers, School for Community Economic
Development, Southern New Hampshire University
Since 1997, the Microcredit Summit Campaign, a project of Washington,
DC-based RESULTS Educational Fund, has become the world's largest global
network of microcredit stakeholders, including 3,600 microfinance
institutions in 134 countries. As of December 2006, our member
organizations provided loans and other financial services to more than 133
million poor families. This includes 92 million families who were living on
less than one U.S. dollar per day when they took out their first loan. By
2015, the Microcredit Summit Campaign aims to ensure that: (1) 175 million
of the world's poorest families, especially women of those families,
receive credit for self-employment and other financial and business
services; and (2) 100 million families rise above the US$1 a day threshold.
For more information, please visit http://www.microcreditsummit.org.
Address: 750 First Street NE, Suite 1040, Washington, DC 20002, USA. Media
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SOURCE The Microcredit Summit Campaign