Debt and lending risk are rising in India's slums and rural areas because big banks and private equity are "carpetbombing" the poor with lucrative microloans. Such small loans with high interest rates, initially driven by social service, were mostly repaid in full. But with so much money available, the poor are fibbing to get new loans to pay off old ones, says today's Wall Street Journal front page feature on microlending in India. It says things got rolling with the 2007 share offering by SKS Microfinance based in Hyderabad, India. (We visited SKS on the Columbia Business School social enterprise trip in 2008.) WSJ found a repeat loan recipient in Ramanagaram, India where people cultivate silk from cocoons for a living -- much like the villagers in our ancestral home in Turkey. The woman, Lalitha Sharma, summed things well: "One problem solved, another created."
Thursday, August 13, 2009
Saturday, August 2, 2008
Will loan competition save the impoverished and hurt honest microlenders? Eleven outfits that lend to the poor agreed to disclose their annual interest rates during this week's microlending conference in Indonesia. Rates published on the Internet, lower than those sharks offer, would give the micro-credit industry more credibility as newcomers plow in. And moreover, would give poor people more competitive rates. Hopefully they don't need Internet access for that benefit. But seriously. A big proponent is Muhammad Yunus, who, after three decades in the biz, thinks micro-loan interest rates should be set to cover costs, not maximize profits. An Associated Press story gives credit for this truth-in-lending effort to Charles Waterfield, an adjunct professor at Columbia University's School of International and Public Affairs. Business Week Journalist Steve Hamm also weighed in on the subject with some good quotes from Yunus. "Microfinance emerged as a struggle against loan sharks, so we don't want to see new loan sharks created in the name of microcredit," Yunus told BusinessWeek last week. "I felt so bad," Yunus told BusinessWeek in December 2007. "I made this thing and they came in and abused it. What a way to discredit a whole idea!" As an aside, Hamm of BusinessWeek has a mighty-cool job traveling the globe. He recently spent a day in Hyderabad, India with Gurcharan Das, advisor to SKS Microfinance. I met Das with fellow CBS students in India; as a journalist, I still can't believe he charged us students for an intimate talk and lunch. I quoted Das, who's quite outspoken and an author himself, in my Chazen Institute paper).
Monday, July 21, 2008
There's a microfinance summit shaping up next week in Indonesia, and one big topic is if and how the commercialization of micro-credit means poor recipients -- especially women, the primary target of loans -- are being kicked aside because of outside investor demands. Participants include Muhammad Unis, founder of Grameen Bank, and a host of microcredit executives from India and Bangladesh. The Washington, D.C. sponsors of the event, the Asia-Pacific Regional Microcredit Summit, naturally promise a big announcement
Saturday, March 22, 2008
Columbia Business School's student-launched microfinance effort, Microlumbia Fund, is holding its inaugural conference April 4 at Uris Hall. Speakers will be talking about trading microfinance debt, how major commercial banks and private equity investors are getting involved, and how microfinance transactions present currency trading strategy. Nancy Barry, the former head of Women's World Banking, is speaking, and a panel includes experts from a Credit Suisse unit that led Latin America’s largest ever microfinance IPO ($466 million, Banco Compartamos), a microfinance investment banker and a TIAA-CREF Asset Management expert on social/community investing. Click on the link to donate or register.
Thursday, March 13, 2008
This week's New Yorker magazine Financial Page says "the cult of the entrepreneur" has yielded a flawed microfinance boom -- a doubling from 2004-2006 to $4.4 billion loaned globally -- that merely helps the poor muddle from crisis to crisis, but does not foster small and mid-sized businesses that would create jobs and really lift people out of poverty. It's valid. The $25 loan for a goat or hundreds for a beauty parlor - those pale compared to the so-called "missing middle" in commercial lending in poor countries, which means investments between $500,000 and $3.5 million that could help build factories. But the article seems carelessly dismissive; consider Muhammad Unis, microcredit pioneer and founder of Grameen Bank in Bangladesh. He got the 2006 Nobel Peace Prize for fighting poverty with microloans. The article does praise Google.org, the Soros Economic Development Fund and the Omidyar Network for recently setting up a fund to invest in small- to mid-sized businesses in India (press release here). What prompted the article? Maybe PR behind a George Mason University economics professor quoted. Prof. Tyler Cowen, who just published a paper in the Woodrow Wilson Center Quarterly, writes, "Yes, microcredit is mostly a good thing. Very often it helps keep borrowers from even greater catastrophes, but only rarely does it enable them to climb out of poverty." My issue: from living on $4 per day, what constitutes a "climb?!" Essentially, Cowen says microcredit is a good thing. Maybe the article buzz is just capitalism at its finest. Cowen just published a book, "Discover Your Inner Economist: Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist." It would be valuable in rural Africa and India if people there would just get rich already.