Micro-finance has become the darling of developmental economics—and many charities—over the past few years. But greater awareness doesn’t always translate into greater effectiveness. As reported in today’s New York Times, for nations with a dearth of traditional lenders new operators have begun to step into the fray, offering micro loans with what turns out to be exorbitant interest rates. Mexico seems to be ground zero for micro-finance sharks.
One outfit called Te Creemos offers annualized interest rates of 125%. (Please note: I have hyperlinked to their site in case you find occasion to write a letter to these Shuteeds–for clarification on this term see the chapter on names in Freakonomics–to let them know how much their services are appreciated). For Mexico as a whole the average interest rate provided by micro-lenders is around 70%! By comparison, the global average, according to most analysts, is around 37%.
Muhammad Yunus popularized micro-finance in the 1970’s to aid basket weavers in Bangladesh. Is he destined to see his brainchild sour like Michael Milken?
