Wednesday, April 21, 2010

Lift Above Poverty my ass...

Finally, the lid is being lifted on the loan sharking business that has been masking itself as micro finance in Mexico and Nigeria. This has put large dollops of egg on the face of the Grameen Foundation and its Nobel Peace prize winning founder Muhammad Yunus. Both the Grameen Foundation and Deutsche Bank have invested in LAPO, knowingly investing in a fund which charges well over 100% interest on loans through which the lender keeps a portion of the loan. For the lead article in the New York Times on this, click here.


Anonymous,  5:07 pm  

Let's complete the roll call of investors: Citibank & Standard Chartered (both guaranteed by Grameen Foundation - coincidence); Blue Orchard & Incofin (two large European microfinance funds); Oxfam is a donor; ASN Bank (an "ethical" Dutch bank also advised by Triple Jump, who advised Calvert Foundation, another coincidence); and of course Kiva, who recently conceded that the interest rate was not 57% as stated by 83% - still a bargain compared to most LAPO clients who pay 126%.

Planet Rating (an independent rating agency, like Moody's) just rated LAPO and awarded them a 3-point downgrade since their last rating. The rating repeated the questions regarding the legality of capturing savings, family connections in the LAPO board, extortionate interest rates etc.

The previous rating by MicroRate was enlightening on the subject of the high client desertion rates at LAPO, but this rating was withdrawn in August last year when MicroRate cited anomalies in the data provided to them by LAPO (

What is interesting is that this information has been in the public domain for so long, and yet the investors miraculously seemed to have "missed" it. This is presumably unrelated to the huge profitability of LAPO.

The poor are getting screwed, as usual. The ultimate investors in LAPO are being deceived about the actual use of their funds. And a few people inbetween make a tidy sum thanks to loan-sharking interest rates. Not much, it appears, is being achieved by microfinance once again.

babatunde 7:45 am  

it's a unfortuate fact of life that the poor pay more for everything, This is true even in the so called developed world, I give you the UK 1737%APR!!!

while the Micro lenders can indeed claim that there are higher costs in small unsecured loans, there has to be a balance between these costs and the generated profit.

What is really needed of course is for the govt to legislate maximum chargable interest rates, but that is not going to happen anywhere in the world because the loan sharks have all the lobbying/political power.

It is important not to forget though that without these institutions their customer base would be forced to used unregulated loan sharks who would charge even higher interest rates.

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