MICROCAPITAL BRIEF: Mohammad Yunus, Founder of Grameen Bank, Calls Out Loan Shark Organizations

In an interview with Vikash Humar, Editor in Chief of Microfinance Focus, Mohammad Yunus, founder of Grameen Bank, blasted profit-seeking microfinance institutions (MFIs). He likened these institutions, which he defined as those who charge more than 15 percent plus the cost of funds, to the loan sharks that necessitated the foundation Grameen. While reluctant to name names, Mr Yunus offered Compartamos Banco, a Mexican microfinance bank founded in 1990, as an example of one of these firms. Mr Yunus additionally spoke out against IPOs by MFIs, such as Compartamos Banco and SKS Microfinance, a microfinance institution (MFI), launched in 1998, which caters to women clients in India.

“You are promising your investors that there is a lot of money to be made and this is a wrong message,” Mr Yunus said. “Poor people should not be shown as an opportunity to make money out of.”

Mr Yunus suggested industry-led regulation to repudiate “loan shark” organizations and enforce the social mission of microfinance, but gave no details.

By Matthew Castner, Research Assistant

Compartamos Banco:

Compartamos Banco is a microfinance bank based in Mexico. It was founded in 1990. It offers both group and individual loans in rural and urban areas. Compartamos Banco provides small loans to low-income Mexican individuals and business owners, such as craft manufacturers, food vendors and other small businesses. It also offers voluntary savings, insurance, and loans specifically for home improvement. The company made its initial public offering (IPO) in 2007 on the New York and Mexican stock exchanges in a transaction worth USD 467 million, and, as of December 31, 2009, has a total loan portfolio of MXN 7.6 billion (the equivalent of USD 591 million).

SKS Microfinance:

SKS Microfinance was founded in India in 1998. In 2005, it transformed into a for-profit non-banking financial company (NBFC). As of September 2009, SKS had 3.5 million active borrowers and 1,676 branches, compared with 771 branches in March of 2008. According to the MIX Market, the microfinance information clearinghouse, its total assets as of 2008 were USD 596 million, with a return on assets of 3.68 percent and return on equity of 18.72 percent. SKS products include: income generating loans, mid-term loans, individual loans, loan cover insurance and health insurance.

Additional Resources

http://www.microfinancefocus.com/news/2010/04/15/need-to-draw-a-line-between-microfinance-and-loan-sharking-prof-yunus/

MicroCapital’s Microfinance Universe profile: Compartamos Banco: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Compartamos+Banco

Similar Posts: