An Open Letter to the Wall Street Journal

While it was not surprising to find coverage of microfinance in your paper the morning after Dr. Yunus received the Presidential Medal of Freedom, we at Unitus were quite surprised to see such a bleak depiction of the microfinance industry, more than 30 years after Grameen began its groundbreaking work.  In attempting to draw parallels between the predatory lending that wreaked havoc in the US and a particularly narrow slice of microfinance work in southern India, the article ignored two factors relevant to any discussion of microfinance.

The first is that great strides have been made in ensuring that microfinance achieves its goal of reducing poverty by creating industry protocols for client protection. Initiatives promoting fair business practices and transparency like Accion’s Center for Financial Inclusion and theMFTransparency initiative have done a great deal to encourage fair, ethical and mutually beneficial lending.  Some have gone further developing analytical tools to better gauge and improve social impact  (often referred to as Social Performance Measurement or SPM) as more and more investors, rating agencies, networks, donors, and practitioners are pushing for a way to keep a watchful eye on both MFI’s success at poverty alleviation and their financial stability.

The second is the enormous and beneficial value commercial capital has provided to microfinance institutions, who have gone on to create opportunities for millions worldwide who use microcredit appropriately to establish or expand income generating opportunities and work their way out of poverty.  While early-stage incubation of microfinance institutions often requires some philanthropic contributions before investment capital is even an option, relying solely on philanthropic grants would have starved this industry, preventing millions of poor families to progress, especially over the past decade.

With two-thirds of potential microfinance clients still without access to basic financial services throughout the developing world, there is still a huge need to increase access to microcredit for productive purposes.  With the alternative being local money-lenders who often charge 200-600%+ APRs, we hope that the negative impressions left by Ms. Gokhale’s assessment do not impede the opportunities that over 300 million families could use to lift themselves out of poverty.

Ed Bland
President, Unitus, Inc.