In the United States, the cost of borrowing money is stated clearly and consistently, thanks to federal law.
The Truth in Lending Act requires lenders to tell customers the annual percentage rate they would pay, so customers can easily shop for the best deal.
But in developing countries, it's truly a different world.
Customers, especially poor business people taking out tiny loans from microfinance lenders, often have a hard time learning the real rate they're paying.
For these borrowers, getting maybe $100 or $1,000, a quoted interest rate of 3 percent per month can result in an APR of a staggering 36 to 96 percent — or more.
But a Lancaster man aims to solve that problem by forming a nonprofit organization that will state the true cost of microfinance loans.
"We'll provide the missing piece of the puzzle to make microfinancing function better," said Chuck Waterfield, an internationally known expert and consultant in the field.
Waterfield's effort has been endorsed by Muhammad Yunus, a Nobel Peace Prize winner and founder of Grameen Bank, the world's largest microfinance lender, based in Bangledesh.
The West End Avenue resident is set to officially announce the creation of his organization, MicroFinance Transparency, on Monday at the Asia-Pacific Regional Microcredit Summit in Bali, Indonesia.
Yunus, who spoke here in April, is set to speak at the summit, expected to be attended by about 1,000 people.
Concern about the rate-disclosure issue, known as transparency, has intensified in recent years as commercial banks have started making microfinance loans, traditionally the domain of nonprofits.
Yunus, Waterfield and other leaders in the traditional microfinance industry worry that some commercial lenders are making incredible profits by doing business with the world's poorest people.
Enter Waterfield's new nonprofit, MicroFinance Transparency.
On its Web site, it will state the prices and repayment schedules of microfinance loan products offered in every country that has them.
The prices will be quoted in APR terms, so the rates of different lenders can be understood and compared easily.
It's a huge job. Waterfield estimates there are 4,000 to 5,000 microfinance lenders operating in 100 to 150 nations.
But Waterfield is building an organization to handle it. He has secured three years of funding from foundations, providing enough support to have 13 staffers and a $650,000 annual budget.
Waterfield, who figures it will take 12 to 18 months to gather, validate and post initial data from every microlender around the globe, hopes to begin collecting data in late August.
Bolivia, Cambodia and the Philippines could be the first nations where data is gathered, because of the size and maturity of their microfinance industries.
Once the data is posted, it will be available free to everyone.
Although microfinance borrowers rarely have Internet access, the information still will reach them via journalists and other means, Waterfield said.
"When the true rates come out, there could be public reaction and political repercussions," he added.
Waterfield, who will locate his organization's headquarters outside the U.S. in coming months, said many major microfinance lenders support his plan.
Staff writer Tim Mekeel can be reached at tmekeel@LNPnews.com or 481-6030.
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