Lenders to the Poor Adopt Guidelines

by Francisco Noguera, NextBillion.net - Development Through Enterprise - Microfinance on Oct 07, 2008

By Elizabeth Malkin

For months, the fellowship of institutions providing microfinancing has been angrily divided over the actions of one of its own.

Compartamos, a fast-growing Mexican bank, went public in April 2007 and sold $468 million in shares on the Mexican stock market and gave the cash to its investors. Critics said the bank, based here, was putting profit ahead of clients, contrary to the altruistic ideals of microlending, which specializes in giving tiny loans to the poorest of the poor.

In its defense, Compartamos said that the stock sale showed private investors that microfinance could be profitable and would attract more private capital to the industry.

Now, it seems, the two sides have reached a truce. This week, Compartamos joined a group of microfinancing organizations to announce a code of conduct to protect the microlenders' clients from being exploited.

Organizations signing the code say it is meant to reaffirm the principles of microlending and set microlenders, which showed the poor were good credit risks, apart from consumer lenders entering the market.