The provision of financial services is neither without risk nor controversy. As the field of microfinance has grown and evolved, predatory lending practices and a lack of risk management by a small number of MFIs have raised important and fundamental critiques of lending practices.
Although similar movements have occurred in other Latin American countries, the “No Payment Movement” in Nicaragua is a prime example of one of the risks with microfinance. In 2008, several thousand people occupied an MFI in the city of Jalapa. The protesting turned violent and the leaders of the movement demanded that Congress accept a 10 year amortization period with 8% APR or less for all loans. This movement has put many MFIs at risk and therefore reduced the available microcredit in Nicaragua.
In India, there have been cases of suicide due to unpaid microcredit loans. When interest rates skyrocket and borrowers are unable to repay their loans, a cycle of debt can result in personal financial ruin.
OneSeed works with carefully selected MFIs that meet our criteria of low-interest rates and high social performance. While microfinance is an important tool that aids millions of people, we recognize the importance of supporting best practices that support the poverty alleviation goals of OneSeed and our partners.