Yesterday evening Danish national Television picked up on the Norwegian program and broad casted it in prime time News – watch it here (only in Danish).
Ole Dahl Rasmussen, Advisor in Danish Church Aid who works with Microfinance, mentions that he is aware of players in the industry that creates challenges like the ones mentioned in the Norwegian program, but it is only a few players he knows of.
Ole explained that Danish Church Aid charges 5% in interest per month on their microloan in Africa – it was not mentioned whether this is as a ‘flat fee’ or on a ‘declining balance’ or whether there are additional fees attached to the loan, so I cannot calculate the APR that they offer their loans at. This said, I am VERY positive that he, representing a leading NGO, leads by example and opens up the debate about how costly it is to lend money to micro- and small scale businesses in Africa (I don’t have the experience with other parts of the developing world, but I guess it is more or less the same)…
You simply cannot compare lending money in Africa (with incomplete financial markets) with lending money in Denmark. Though, some time ago in Denmark, microloans via your mobile phone was introduced and when you read the terms and conditions with tiny tiny letters, which you by law must include in adds like this in Denmark, you could see that APR was between 2,000% and 3,000%!! Just sending in the application had a price tag of around EUR 4… so actually, you CAN compare lending money in the two markets and I am not in doubt where I would borrow the money looking at this ‘example’.
Let me introduce you to an organization we really like to see succeed in the developing world: MF Transparency – they are set in the world to help you calculate and understand interest rates, APRs, and the correlation of operating costs and loan size – and best of all: they are making this information transparent, so players in the industry can’t hide!
‘Our Mission is to be the venue for the microfinance industry to publicly demonstrate its commitment to pricing transparency, integrity and poverty alleviation.
Our Vision is a microfinance industry operating with healthy free market conditions where consumers and other stakeholders can make informed decisions.’
The interest rate debate is important, for sure, BUT let me highlight THE single most important aspect of lending/borrowing capital as we see it: the ability to repay – as I also wrote about in the post yesterday.
Have a great day,
P.S. It was mentioned that the Norwegian program will be sent on Danish national Television in January next year.