World Bank Calls For Microfinance Rules
Lenders making small loans to poor people in developing countries should be subject to regulation to prevent abusive practices, according to the World Bank.
The International Finance Corporation (IFC)s “responsible microfinance initiative” follows growing concern about the high rates charged by some lenders and comes amid fears rising food prices could hamper poor people’s ability to repay debts.
The World Bank arm (IFC) plans to develop these principles in partnership with financial institutions and in consultation with a consortium of public and private development agencies.
IFCs Executive Vice President Lars Thunell explains:
– In addition to defining a set of prohibited practices – including a ban on the use of violence to coerce poor people to repay their debts – these principles are likely to include a commitment to education and an emphasis on disclosure and transparency, enabling borrowers to better compare interest rates.
The IFC believes that competition and scale should eventually reduce the costs of administering microfinance loans enabling financial firms to offer more attractive rates.
Furthermore, technology is likely to play a role in widening access to microfinance – for example by allowing borrowers to pay using their mobile phone instead of going to a bank.
– If people are not going to be able to pay because they have to feed their children the question is how should microfinance institutions deal with that. I do not think anybody has the answer, but that is something that needs to be thought about, Thunell stated.
Thunell said that his dream is to help financial firms provide insurance to farmers to protect them against sudden hardship.
Kilde: www.worldbank.org
Meanwhile, Reuters reports that “China, the largest untapped micro-finance market in the world, is slowly introducing micro-credit but is hampered by unfamiliarity and a lack of clear regulations, an IFC official said. Seven domestic micro-credit corporations have been established in five pilot provinces in China, and two foreign-invested micro-credit corporations were created with assistance from the IFC, said Jinchang Lai, Deputy General Manager of IFC’s private enterprise partnership China Program. …
A cultural reluctance to take on formal debt also hampered micro-finance programs, Lai told a conference in the Mongolian capital Ulan Bator at the weekend. Previous attempts to set up micro-finance in less developed regions date from the 1990s, but only about 100 projects, out of more than 200 initially, are still ongoing. Lai cited China’s complex regulatory environment, a lack of public familiarity with micro-credit and a difficulty in hiring people with micro-credit experience as some of the obstacles to developing micro-credit in China.
