Keep banks out of microfinance

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The FT has reported the following:

The world's biggest banks risk creating a subprime-style crisis for millions of the planet's poorest people if they continue to plough money into the booming microfinance sector, Muhammad Yunus, the Nobel laureate pioneer of microcredit, warned on Monday.

In a broadside against the increasing commercialisation of microfinance, Mr Yunus said overseas investors only served to introduce foreign exchange risks and should stay out of the sector.

Many in the industry fear that with the introduction of the profit motive to what was once a strictly not-for-profit endeavor is driving reckless lending at exorbitant interest rates of the kind that led to the meltdown of the US subprime mortgage market.

"When you are making profits you are moving into the mentality of the loan shark," Mr Yunus said. "We are trying to get that loan shark out."

In this case the banks are the loan sharks: they have no place in this type of finance which must be managed for mutual benefit.