The lack of ethical standards in the microfinance industry is striking in view of the very elaborate financial standards that have come to govern it. There is a variety of reasons to explain this phenomenon.

The first reason has its base in the history of the industry: as long as financial services were offered by non-profit organizations, which in turn were supported by non-profit investors, the civil society character of the industry ensured reasonably fair treatment of customers. In fact, it could be argued in many cases that customers were treated too leniently at the expense of building viable service institutions, which distorted the proper functioning of financial markets.

The second reason has been the drive to involve private sector capital in order to meet industry targets. This course was pursued with such vigor that many players turned a blind eye to poor treatment of customers. Known cases were usually considered as incidents rather than symptoms, and efforts by national authorities to curb bad practices were routinely denounced as harmful to the industry at large. A laissez-faire attitude was preached as the cure-all: the market would take care of bad practices if only it were allowed to flourish.

A third reason is the build-up of considerable institutional interests on the supply side of the industry. Billions of dollars have been raised to invest in the industry and increasingly these funds are raised with an accent on profitability. Private sector investors are offered handsome returns, marking the marketing of microfinance as a new asset class. Realizing such handsome returns results in growing costs of capital and the diminished capacity of practitioners to apply moderate pricing policies. It also puts great stress on practitioners to recover loans at all costs.

Lastly, it is often assumed that no ethical standards can be designed that would apply universally to the industry given the great variety and diversity that exists within the microfinance industry.