Bono Stumbles Upon a Good Point on Microfinance

I’m not a big fan of Bono’s new gig as a contributing columnist over at the Times (mostly because I find him to be a much better singer than writer), though I will give credit to anyone who can use “doppelganger” and “Mike Tyson” in the same sentence. Still, though, buried in his Sunday New York Times piece is an important reference to a not-so-sexy discussion that’s heating up in the development community right now.

Bono is generally good at knowing what his reader wants. He doesn’t disappoint this time either, giving a play-by-play of his trek across southern and eastern Africa and revealing that he likes to consider Nelson Mandela his boss. But the part I wanted to hear more about took up all of 38 words.

It’s the story of a meeting with Mozambique’s former prime minister, Luisa Diogo, and a group of women who were concerned about excessive interest rates on microloans — that is, small loans to the poor that are intended to stimulate entrepreneurship. Their complaint, as we wrote about last week, is one that's being mirrored across the developing world. As more and more traditional finance institutions see the potential for profit in microfinance, squeezing out smaller microfinance groups, we can only expect these (justified) protestations to grow.

Fortunately, momentum to reform microfinance has been building.

In March, for example, just days after Bangladeshi Finance Minister AMA Muhith ridiculed the microfinance industry for interest rates that “ensnare the borrowers in perpetual debt,” microloan pioneer Muhammad Yunus called for standardization of the rates and questioned whether microfinance has evolved into something much different than what it was when it first started. "Many organizations take collateral against loans,” he said, “some give loans to middle-income people, some even lend money to buy consumer items and say that it is micro-credit."

Nevertheless, the development community has largely sat by while interest rates have skyrocketed around the world, casting a pall over the good work that groups like Grameen Bank and others are doing.

It's time for that to change. Yunus's call to standardize these rates should be heeded by anyone concerned with poverty alleviation. It shouldn't take a rock star like Bono to rally people against this deepening — and disturbing — trend.

Photo Credit: Robert Hensley