The following post was published on the USAID‘s Microlinks blog on Wednesday, Nov. 3, 2010. It was written by Eric Meyer, Opportunity’s agricultural finance manager, who is guest blogging about the 2010 Annual SEEP Conference in Arlington, Va. this week for Microlinks. Click hereto see the original post.
The microfinance industry in India has gotten some heat in the press lately. According to theWall Street Journal, in recent months local politicians in the Indian state of Andhra Pradesh have urged microfinance clients to stop paying loans, effectively freezing the repayments of loans in the area.
These events characterize a very relevant challenge within our industry that was discussed at today’s SEEP panel entitled “Newspaper Headline Risk for MFIs: Transparency in Interest Rates and Returns.” In the past several yearsmicrofinance has grown at breakneck speed due to its affirmation as a powerful poverty alleviation tool. The strong social mission within the industry has resulted in terrifically high (albeit noble) expectations, so when it is perceived that institutions within the industry are pricing their loans at rates perceived to be too high, people take notice. In other words, practitioners, MFIs, and networks “make the headlines.”
How can this risk of negative press around microfinance be mitigated? First and foremost, today’s panelists agreed that transparency and public education are of paramount importance. There is no single “ideal” interest rate for microfinance products since MFIs operate in many different contexts and offer many different products. As a socially responsible industry we must be vocal in communicating these differences to the public.
Additionally, it is imperative that we as an industry think about and collaborate in ways which promote responsible practice through common and transparent reporting standards. In addition to giving stakeholders and the public a common lens through which to view pricing within the industry, achieving common and transparent reporting standards holds us accountable to our missions of providing access to credit in a sustainable manner. To read more about this issue, please visit mftransparency.org and reportingstandards.org.
This week, the Opportunity blog will be reposting Eric’s posts, and posting some of our own.Click here for our coverage of the 2010 Annual SEEP Conference.