American Banker Op-ed by Elisabeth Rhyne: Standards for Microfinance Growth

> Posted by Kelley Mesa

Viewpoint: Standards for Microfinance Growth
American Banker
By Elisabeth Rhyne

Elisabeth Rhyne

Elisabeth Rhyne

As mainstream credit markets seize up, the world’s microfinance organizations, or MFIs, have not yet felt much heat. If anything, the crisis of confidence has highlighted what a good credit risk most microfinance clients have proven to be.
Isolated in most cases from their countries’ formal economies, the self-employed poor are also resilient during downturns. Indeed, microfinance may be a bright spot in the banking industry’s future — a huge market of hundreds of millions, whom pioneering microfinance specialists are learning to serve in a sustainable way.
But the credit crisis highlights a threat of another kind. The subprime lending abuses that fueled the U.S. housing bubble demonstrate the dangers of financial services to the poor done wrongly. The subprime industry’s core failures in consumer protection — tempting low-knowledge customers into overindebtedness, ignoring capacity to repay when approving loans, failing to clearly disclose and explain loan terms — are the fruits of intense competition and ineffectual regulation. Though these practices are not widespread in microfinance, competitive conditions in some markets could tempt providers to adopt some of them.
In some microfinance markets…
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