CIFESAL: CURSO ESPECIALISTA EN COOPERACION. MODULO 4 JM Tabern Sesin 9 !" #e #i$ie%bre &''( A)*n+es: Mi$r,-inan.

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Muhammad Yunus challenges Compartamos bank Is it ok to make a big profit from lending to the poor? Where does microcredit end and loan sharking begin? Carlos Danel and Carlos Labarthe, the CEOs of Compartamos, a nonprofit-cum-commercial bank which charges an annual interest rate of nearl !"" percent, belie#e that onl the lure of profits will moti#ate people to lend to the poor$ %oda Compartamos reaches &"",""" borrowers and '' percent of its clients come back for more loans$ In (""), it was rated as *e+ico,s most profitable bank$ *uhammad -unus, the .obel laureate who pioneered the mo#ement three decades ago and has made loans to some & million borrowers in /angladesh, disagrees$ 0oor people,s willingness to pa high interest is not a 1ustification for charging it, he sa s$ Compartamos is not microcredit, it,s 2raking in mone off poor people desperate for cash$2 What do ou think? %he comments are open$ %he entire program is a#ailable here$ Comments 3'4 E-mail Digg /ookmark

0osted b Chris *onasterski on October !, (""& in 5ccess to finance, 5id effecti#eness, Corporate responsibilit , Latin 5merica, 6outh 5sia TRACKBACK %rack/ack 78L for this entr 9

http9::www$t pepad$com:t:trackback:;)()<=:(("<<';' Listed below are links to weblogs that reference *uhammad -unus challenges Compartamos bank9 COMMENTS I agree, and am deepl disturbed b the recent trend of profit focused microfinance$ It seems to me that the .>O-based not-for-profit microfinance mo#ement was working well and ha#ing positi#e impacts on borrower,s li#es$ Donors were interested and pro#iding the capital necessar for *? #entures$ @owe#er, with the realiAation that *?Is can sucessfull operate under a for profit structure, *?Is that offer multiple products and ser#ices without a profit moti#e are being forced to shift their model to one of for profit sustainabilit $ %his shifts the entire industr upmarket and results in the limiting of donor funds for those who do not make the shift$ I am not arguing that financial sustainabilit is undesirable$ On the contrar , if an *?I is able to remain focused on its inital goals and operate sustainabl , that is ideal$ %he problem is that a ,sustainabilit first, focus freBuentl results in mission drift$ 0osted b 9 Caio C Oct (, (""& !(9"(9(< 0* I think it is absolutel tragic that a bank would hold itself out as a non-profit and charge poor borrowers !""D per annum interest on their micro-loans$ %hat being said if these same borrowers would use #illage loan sharks and pa !"""D interest if Compartanos didn,t e+ist than the are mo#ing in the right direction$ I 1ust hope and pra that those who benefit 3profit4 from this bank,s 0ublic Offering find it in the kindness of their hearts to use their proceeds for charitable purposes$ 0osted b 9 /rian Do le C Oct (, (""& (9!"9;= 0*

If profits are rein#ested, lenders like Compartamos and the 0eru#ian Ca1a %ru1illo, which I ad#ise, are able to reach more borrowers$ Each new small borrower is hugel benefitted b being able to borrow at !""D instead of the se#eral hundred percent charged b informal lenders$ 0osted b 9 8ichard Webb C Oct (, (""& )9E<9!& 0*

Would -unus be upset if big banks decided to ser#e the poor? I,m guessing he wouldn,t$ 6ome 3ma be CF 0rahalad4 would sa , it,s about time these corporations paid attention to this market$ 5n wa , it sounds like in#estor mone can e+pand microfinance to a lot of people Buickl $ -eah, the in#estors are making a profit$ /ut are we going to pre#ent the poor from impro#ing their li#es 1ust so the rich can,t get richer? %his is reall short-sighted$ What we need to know is the sweet spot for interest rates and in#estor mone $ @ow much can interest rates be raised without ad#ersel affecting a large fraction of the borrowers, and at the same time, raise enough mone to ser#e as man people as possible? %his is what 0/6 should ha#e addressed$ 0osted b 9 *ark @$ C Oct !", (""& ;9<'9E) 0*

the simple truth is that the markets are dri#en b 8OI$ we talk about the efficienc of the markets in terms of pri#ate capital utilisationG but cringe when the market finds its 2sweet spot2 3and it happens to be !""D4$ truth be told, microfinance is becoming de#elopment,s 2sub-prime2 marketplace$ I?I,s could pla a bigger role, a regulator role from a capital flows 0OH, b undercutting the abilit of pri#ate capital to take ad#antage of the poor while also reducing the risk of loans to micro-enterprises b pro#iding clear a framework and e#en guarantees$ 0osted b 9 spook C Oct !&, (""& !(9";9<' 0*

C$F$0raladh,s approach to make corporate profit out of po#ert through microcredit whereas prof -unus,s >ramin /ank wants to enrich poor b microcredit and pro#ide them necessar support so that nonperforming assets of the bank does not increase being paid back the loan$ 0osted b 9 D8$085/I8 D7%%5 C Oct (=, (""& !9!E9<< 0*

It is ob#ious it is creating 1ealous $ 5s competition will grow interest rates will go down$ Compartamos might be looking to benefit from his leading position, agressi#l in#esting to e+pand and settle it,s market reach, before other banks tr to enter the market$ *oreo#er, the most e+pensi#e credit is the denied access to it$ 0eople are d ing to access opportunities and handling such small loans indi#iduall 1ustifies higher interest rates which are more than welcomed among its users$ 0osted b 9 grasshopper C .o# !", (""& E9E)9"= 5*

5s a microfinance ppractitioner in Ethiopia, I am happ to see this debate again here, after the intensi#e discussion at the microfinance practioners ahoo groups discussion some months ago$

I would sa ,,it is better if the poor can access finance e#en if the pa higher interest rate -- i$e, if the alternati#e is .O% ha#ing the access at all,,$ %he real Buestion, howe#er, is whether the ,e+isting poor, should pa more to the *?I 3and to what e+tent?4 inorder that the *?I e+pand operation and the ,future poor, would ha#e the access to the ,sustainable, financial ser#ices$ *echanisms should be also be in place to check that the *?I is working at the ,desirable, 3what is the benchmark?4 le#el of efficienc and appropriate measres are in place to facilitate the ,infrastrucure, 3roads, etc, that also impact on the *?I efficienc 4 in which the *?I is working$ %he ne+t logical Buestion is whether the profit so generated is actuall used or re-in#ested for the intended purpose of ser#ice e+pansion$ %he *?I board 3and others in go#ernance4 has the direct responsibilit on this$ %he assumption is that the *?I with a ,double-bottom-line, ob1ecti#e ha#e people at the board who work to maintain their ,reputation, 3since the are not profit-moti#ated4 and good public image$ It ma also be for future election$ $$$$/ut we cannot guarantee that the work for their reputation, public image, etc$ Indeed, where the democratic s stem is so poor, as it is in man poor countries, the can e#en manage to win the ne+t election without ha#ing to bother about good reputation and public image$ 6o where there is practicall no one seriusl monitoring that the profit generated actuall goes to e+pansion of ser#ice pro#ision to reach more poor 3both now and in future4 either from the *?I board, the Central /ank, >o#ernment, *?I 5ssociations, lobb groups, etc, etc, *?Is -- particularl those facing little competition to force them lower the credit interest rate down -- will continue taking mone from the #er pocket of the poor, and still 1ustif there operation under the prete+t that the profit so generated will be used for e+pansion to more poor in other 3remote4 places, future tme, etc -- It is simpl like mining newl -disco#ered natural resourceII E#er one working o de#elopment issues should be concerned about this #er issue$ * papers dealing on this and other microfinance issues are posted at the World-/ank microfinance wing Consultati#e >roup to 5ssist the 0oorest 3C>504 3www$cgap$org4$ ?or pecific papers, ou can #isit C>50,s microfinancegatewa using the following link9 http9::www$microfinancegatewa $org:fullte+t:results$php? ftJdatat peKE(D(C!!D(C&D(C("D(C<D(C!ED(C=LftJ1unctionKallLftJke wordsKgobeAieLprKcgapJmfgLorderKrL6ubmitK>oM DEE Looking forward to hearing fro ou soon$ /est 8egards, >etaneh >obeAie 5mhara Credit L 6a#ing Institution Deput *anaging Director %el9 (<!-=!!-"=("EE 0$O$/o+9 ;=' E-*I5L9 getanehg(""(N ahoo$com /ahir-Dar E%@IO0I5