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Big banks profit from microloans
Key Excerpts from Article on Website of New York Times
Posted: April 19th, 2010
http://www.nytimes.com/2010/04/14/world/14microfinance.html
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. Actors like Natalie Portman and Michael Douglas lent their boldface names to the cause. Muhammad Yunus, the economist who pioneered the practice by lending small amounts to basket weavers in Bangladesh, won a Nobel Peace Prize for it in 2006. The idea even got its very own United Nations year in 2005. 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. We created microcredit to fight the loan sharks; we didnt create microcredit to encourage new loan sharks, Mr. Yunus recently said at a gathering of financial officials at the United Nations. Microcredit should be seen as an opportunity to help people get out of poverty in a business way, but not as an opportunity to make money out of poor people. The noisy interest rate fight has even attracted Congressional scrutiny, with the House Financial Services Committee holding hearings this year focused in part on whether some microcredit institutions are scamming the poor.
Note: An excellent introduction to the power of microloans to pull people out of poverty is available here. For key news reports on the exciting prospects of microlending, click here.
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