Blog

Want a safe bet for 2009? Try microcredit

Blog0 comments

Small Is Beautiful. Want a safe bet for 2009? Try microcredit.

.

The Economist

.

A great article about the investment potential of microfinance

.

Wall Street’s titans minted money in good times but now find it hard to repay their debts, if they are in business at all. Ironic, then, that many of the world’s poor are better credit risks than the once-high-flyers at Lehman Brothers. This is one of the attractions of microcredit, the lending of tiny sums—as little as $50—to people at the bottom of the economic pyramid. It is an increasingly bright light in the gloom of the financial world.

.

Micro-borrowers range from farmers in rural areas to shopkeepers, artisans and street vendors in cities. In places where banks do not reach the poor, micro-lenders (often NGOs and non-profit organisations) provide capital to people who can put it to good use. If you think this looks like another subprime scheme—lending money to people who should not be borrowing—cheer up. Micro-borrowers have a stellar repayment record: Muhammad Yunus, founder of Bangladesh’s Grameen Bank and recipient of the 2006 Nobel peace prize for his work in microfinance, says repayment rates are 95-98%. American credit-card holders are not that dependable.

.

Increasingly, mainstream financial firms see money to be made. A study by the MicroBanking Bulletin puts the inflation-adjusted returns for lenders on a par with commercial banking. Advocates of the poor worry that too much commercialism will ruin microfinance, but a decent return will attract more capital, broaden its reach and make the whole enterprise more sustainable.

.

Microcredit’s marriage with technology is opening new opportunities. Mobile phones and a local shopowner willing to handle the cash can extend microlending to a wider audience. XacBank, in Mongolia, is planning a mobile-banking programme that could cover as many as 300,000 people—no small feat in a nomadic country where livestock outnumber people 13 to one. Another bad year on Wall Street and goat-herding may look attractive there as well.

Be Sociable, Share!

Comments are closed.

Leave a Reply

You must be logged in to post a comment.