What Would Leland Stanford Do?

This editorial commentary argues that Compartamos's initial public offering (IPO) is a warning that microfinance is going awry. The commentary makes the following points in support of its argument:

• A responsible social investor needs to realize that in microfinance markets the poor people bear all the costs;
• Microfinance investment decisions should be made with careful due diligence and a realistic understanding of local market conditions;
• Microfinance institutions (MFIs) should lower the rates for customer-borrowers instead of profiteering on behalf of shareholders or investors;
• The Compartamos IPO brings into focus a lack of transparency for social investors;
• Social investors have an obligation to determine if their investments are being repaid with predatory interest rates;
• MFIs that depend on private market financing will be under pressure to de-emphasize holistic, all-inclusive anti-poverty microfinance programs.

The editorial commentary concludes that:

• There is more to microfinance than making money
• There is something unseemly about wealthy individuals and institutions earning excessive returns off the unbearably poor;
• The Compartamos IPO is a radical departure in core purpose, objective and intention;
• Microfinance should remain a platform for wiping out the scourge of poverty.