2010 SEEP Annual Conference: Newspaper Headline Risk for MFIs: Transparency in Interest Rates and Returns

Eric Meyer is guest blogging during the 2010 SEEP Annual Conference.

The microfinance industry in India has gotten some heat in the press lately. According to the Wall Street Journal, in recent months local politicians in the Indian state of Andhra Pradesh have urged microfinance clients to stop paying loans on account of what they deem “usurious interest rates and heavy-handed practices,” effectively freezing the repayments of loans to microlenders in the area.

These events characterize a very relevant challenge within our industry that was discussed at today’s SEEP panel entitled “Newspaper Headline Risk for MFIs: Transparency in Interest Rates and Returns.” In the past several years microfinance has grown at breakneck speed due to its affirmation as a powerful poverty alleviation tool. The strong social mission within the industry has resulted in terrifically high (albeit noble) expectations, so when it is perceived that institutions within the industry are pricing their loans at rates perceived to be too high, people take notice. In other words, practitioners, MFIs, and networks “make the headlines.”

How can this risk of negative press around microfinance pricing be mitigated? First and foremost, today’s panelists agreed that transparency and public education are of paramount importance. There is no single “ideal” interest rate for microfinance products since MFIs operate in many different contexts and offer many different products. As a socially responsible industry we must be vocal in communicating these differences to the public. Additionally, it is imperative that we as an industry think about and collaborate in ways which promote responsible practice through common and transparent reporting standards. In addition to giving stakeholders and the public a common lens through which to view pricing within the industry, achieving common and transparent reporting standards holds us accountable to our missions of providing access to credit in a sustainable manner. To read more about this issue, please visit mftransparency.org.