A few bad apples give microfinance a bad name

 Hi everyone, this is Jeff Rutt. In the world today many of our problems can be traced back to greed and self-interest.  Individuals and companies looking to cheat the system to make a few extra dollars are everywhere. Unfortunately in our sinful world greed has taken its toll on the microfinance industry as well. The article below provides some details on how a few bad organizations looking to make some extra money have cast microfinance in a negative light. When people take advantage of others for their own gain it is sad. Thankfully God has called his followers to be salt and light to the world, and example of His love. At HOPE we seek to be the salt and light of the microfinance world not only to those we serve but to others who may be watching us as well. Are you frustrated by greed and corruption in your world? If so take this opportunity to be the change you seek, by being salt and light in your community or workplace.

Many Blessings,
Jeff Rutt

A few bad apples give microfinance a bad name

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MICROLENDING IS one of the most effective ways to help the world’s very poorest out of poverty. Tiny loans of $10 or $20 can help struggling families start small businesses that are the difference between chronic hunger and financial success. For a subsistence farmer in Kenya, or a bicycle taxi driver in India, microcredit institutions are often the only place to turn to for credit, banking services, and life insurance.

But, after years of explosive growth, the world’s microfinance sector is in trouble.

According to a recent report by the Micro­credit Summit Campaign, the number of clients served by microfinance institutions has declined from 205 million to 195 million. That’s the first drop since the group started keeping track in 1998.

Most of the decline can be attributed to one place: Andhra Pradesh, India, where the rapid commercialization of microloans led to abusive practices. At first, most micro­loans came from nonprofits dedicated to helping the poor. But as the sector grew at a rate of 200 percent per year, other institutions got into the business. Some of them lent more than the clients could afford to repay and used harsh practices to collect. Negative press and a rash of debtor suicides spurred a government crackdown on the sector that severely restricted microlending.

A backlash against microfinance has cropped up in other parts of the world including Bolivia, where opportunistic politicians and disgruntled clients blockaded the offices of microfinance institutions, causing repayment rates to plunge.

These are cautionary tales about what can happen when institutions appear to be more interested in their own growth than the financial well-being of their clients. For-profit groups that charge high interest rates and pay high salaries to their own executives give microfinance a bad name. They are making money off the backs of the poor, not giving the poor a leg-up. The good guys in this industry should do their best to sound the alarm against such practices. ­Microcredit is a crucial tool against poverty, and its reputation must be preserved.

Article posted on http://bostonglobe.com/editorials/2013/02/21/few-bad-apples-give-microfinance-bad-name/Gmk3kSMzXD7oxhmTs1x24M/story.html

Thanks again for reading, stay tuned for more articles and comments-Jeff Rutt