The idea of offering microcredit to entrepreneurs in 3rd world countries may be ideological in its basis, many of todays investors seem to have lost sight of this original intention.

At least, that is one of the conclusions drawn in a recent article in the Wall Street Journal.

In a quest for high yield and maximum profit, countries like India are bombarded with microcredits. The people living in these countries are tempted by the easy credit but often get into financial trouble as a result. They spend the money on luxury items instead of investing it in their enterprise and when they find themselves unable to repay, they might take out a new loan to cover the old one. This way, the concept misses its original point and the inhabitants of 3rd world countries are back at square one.

Basic principles of healthy microcredit
A spokesperson for the ideological Dutch Triodos bank stated in a recent article in het Financieele Dagblad that institutional investors sometimes demand rates of up to 20% for microcredit investments. The pressure applied by these investors may cause microcredit organizations to act in the best interest of the money, rather than the best interest of the people. According to the Triodos bank, there are a couple of principles microcredit organizations should uphold at all costs: They should make sure the debtor is in a position to pay off their debt. They should establish a good relationship with the debtor, who is often illiterate, to make sure they can indeed pay off their debt. And, finally, they should have a central credit registration system, to make sure a debtor doesn’t take out a new loan to pay off the previous one.

Still, the Triodos bank stresses that it’s not all bad. A lot of creditors still invest with the best interest of the people in mind. A spokesperson for the Dutch ASN-Novib fund disagrees with the negative reports. She hasn’t noticed a money-grabbing mentality of easy credits and high interests at all.

What do you think? Are the interest rates over microcredits unfair, causing the original purpose of microcredit to be defeated? And, secondly, do microcredit organizations pay enough attention to the people?