One of the reasons microfinance emerged in the first place is to stop loan sharks from lending money to people at unreasonable high interest rates. To this date, MFI’s worldwide have become de facto regulators of this underground practice. For example in Mexico, whenever Compartamos issues a credit, the loan officer first reads out a code of ethics and a set of legally-binding rules to each client notifying them what they can and cannot do with the loan granted. Nonetheless, how to really know for sure whether MFI clients are not using the money loaned to extort others?
Sadly, last week, in one of the field visits we encountered a woman who told us her inspiring story but forgot to leave out the part where she explains how she operates as an uncertified, illegal loan officer, giving out credits at an interest rate 10% higher of the rate she gets in Compartamos Banco.
After describing in detail her daily activities as a hairdresser and sharing with us her goals and future dreams, she went on to describe her usurious practices and daily operations as what she calls “caja de ahorro” or savings box.
No one really knew what to say or even how to react towards her “secret to success”. She mentioned that her loan officer was not aware of this so she wanted us to keep it a secret. What surprised me the most was how nonchalant she was about her shady secret. It was almost like she knew it was wrong but never really understood the severity of her actions.
The tension filled the 2×2 hair salon and with a diversionary question we finished our visit.
After the visit, we had a brief discussion with the loan officer of what had just happened. It was clear that the hopeful hairdresser was not going to get her next loan renewed.
I wonder, however, what legal mechanisms can be put in place to prevent this from being a recurrent problem. My question is, how can Compartamos ensure that she will not go to another MFI and do the same thing?