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Microloan sharks

Commercial microfinance institutions (MFIs) must calculate two bottom lines: alleviating poverty for clients and also generating profits for investors. To achieve the latter goal, some MFIs charge their impoverished clients exorbitant interest rates. The recent Banco Compartamos IPO in Mexico raises a red flag, demonstrating how easily well-intentioned MFIs and their investors can shift from microlending to microloan-sharking.

BANCO COMPARTAMOS, THE LARGEST MICROFINANCE institution in Mexico, is the acknowledged poster child for commercial microfinance institutions (MFIs). From its inception in 1990 until 2000, Compartamos operated as a not-for-profit nongovernmental organization (NGO), ...

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