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Compartamos, a Mexican lender that began as a non-profit, charged poor women effective annual rates near or above one hundred percent. Its 2007 public offering made its early backers and managers very wealthy. The case shows that 'microfinance for the poor' could be run as a high-margin business, and that the backers who profited had kept supporting it while knowing what it charged.
Lenders quote a flat monthly rate calculated on the original principal rather than on the declining balance. Borrowers cannot compare offers, and investors can report 'reasonable' rates while the real cost exceeds one hundred percent.
When borrowers cannot repay, loans are rescheduled, refinanced or covered by a new loan from the same or another lender. The overdue debt is not written off. This keeps reported portfolio-at-risk figures low, so a lender under stress looks sound to funds and rating agencies. The illusion holds until over-indebtedness triggers a collapse, as in the 2008 Nicaragua and 2010 Andhra Pradesh crises.
Microfinance investment funds and ethical banks market themselves to depositors as poverty-reducing. That label becomes the product they sell, which creates an incentive not to ask what their investee lenders charge or how they collect. Following the money from the European saver to the borrower shows that each intermediary relies on the others' reputation, so no one checks. Abuses persist because the investors had reasons not to look, not because they could not know.