Microlending

You asked, we answer: Can microloans lift women out of poverty?, By Nurith Aizenman, November 1, 2016, National Public Radio: “‘I would like to know more about microloans, and if they are in fact helping women start businesses in the developing world.’  That’s the question our readers wanted us to look into.  You’ve probably heard the stories. A desperately poor woman in a poor country gets a tiny loan — a couple hundred dollars. It’s the break she’s always needed. With that money she can finally buy the materials to start a small business. She turns a profit. Her income rises. Now she has money to expand her business even further, buy her kids more nutritious food, pay their school fees. Over time, she lifts her whole family out of poverty.  That’s the vision often associated with microloans in the popular imagination.  But is it the reality..?”

Small Businesses and Microlending

A big breakthrough in tiny loans, By E. Scott Reckard, October 14, 2012, Los Angeles Times: “The Alameda Swap Meet in South Los Angeles is about the last place you’d expect to find a breakthrough in small-business lending. Filled with Spanish-speaking mom-and-pop vendors selling cowboy boots, videos, quinceañera dresses and fresh fish, the indoor bazaar tends to be long on cash sales and short on formal bookkeeping. But vendor David Manzo is building his business one swipe at a time. Every time a customer pays with a credit or debit card, a portion of that sale automatically goes to pay down a $5,775 loan to the Mexican immigrant, whose Mirna’s Market offers herbal remedies and religious items. The loan’s 12% interest rate is a fraction of what Manzo paid in the past for expansion and inventory loans. And he never worries about repayment. If business slows down, his installments drop automatically; when things pick back up, the higher sales mean the loan balance goes down faster…”

Benefits of Microlending

The bad – and good – news on microcredit, By Gregory M. Lamb, June 9, 2011, Christian Science Monitor: “First Muhammad Yunus founded the nonprofit Grameen Bank, which lent tiny amounts of money to poor people to start businesses. It appeared to be a revolutionary success and he received the Nobel Peace Prize for his work in 2006. In 2009, for example, Grameen had 6.4 million active borrowers with an average loan size of $127. Then came the second guessing. For-profit companies got into the micro-loan business charging high interest rates in order to generate an attractive return for their investors. While nearly all of Grameen’s borrowers repaid their loans in full, other lenders didn’t do so well. Borrowers began to default. Pressured by their creditors, some in India even committed suicide when they couldn’t repay their loans…”

Microfinance in India

  • Microfinance struggles to restore its reputation, By Erika Kinetz (AP), March 7, 2011, Boston Globe: “Long heralded as a way to lift the downtrodden out of poverty, microfinance is under a cloud. The stories of lives being changed by a $27 microloan and picture perfect scenes of smiling women with colorful handlooms, empowered by affordable credit, have been replaced by headlines about borrowers driven to suicide. At best, microfinance seems to be failing to achieve its most noble goal: poverty alleviation. At worst, some lenders are contributing to a cycle of indebtedness and abuse, just like the loan sharks they sought to replace. Critics say the industry has grown too quickly for its own good, with too much rapaciousness and too little regulation. That has fostered a breakdown in lending discipline, with multiple loans to overextended borrowers, and allowed some unscrupulous players to thrive…”
  • India’s poor need help to help themselves, By Sarika Bansal, March 7, 2011, The Guardian: “Until recently, microfinance has been the golden child of international development. Microfinance companies would lend small amounts of money to poor women who would, in the ideal scenario, use them to start small businesses. Their interest rates were typically lower than loan sharks’ but still high enough to make a profit. Around the world, development experts believed microfinance was an ideal way to alleviate poverty, a smart way to ‘do good’ while also ‘doing well’. How times have changed. In the last few months, many people have become newly critical. In November, politicians in the southern Indian state of Andhra Pradesh started making bold claims about how microfinance’s crushing interest rates and strongman tactics were, among other things, leading to suicide among over-indebted borrowers…”

Microlending in Developing Nations

Microlenders, honored with Nobel, are struggling, By Vikas Bajaj, January 5, 2011, New York Times: “Microcredit is losing its halo in many developing countries. Microcredit was once extolled by world leaders like Bill Clinton and Tony Blair as a powerful tool that could help eliminate poverty, through loans as small as $50 to cowherds, basket weavers and other poor people for starting or expanding businesses. But now microloans have met with political hostility in Bangladesh, India, Nicaragua and other developing countries. In December, the prime minister of Bangladesh, Sheik Hasina Wazed – who had championed microloans alongside Mr. Clinton at talks in Washington in 1997, while Mr. Clinton was president – turned her back on them. She said microlenders were ‘sucking blood from the poor in the name of poverty alleviation,’ and she ordered an investigation into Grameen Bank, which had pioneered microcredit and which, along with its founder, was awarded the Nobel Peace Prize in 2006. In India, until recently home to the world’s fastest-growing microcredit businesses, lending has slowed sharply since the state with the most microloans adopted a strict law restricting lending. In Nicaragua, Pakistan and Bolivia, activists and politicians have urged borrowers not to repay their loans…”

Microlending – India

In India, greed creeps into microlending, critics say, By Rama Lakshmi, October 30, 2010, Washington Post: “The microcredit revolution has been celebrated for helping poor women in developing countries start small businesses. By borrowing money for purchases such as a buffalo or sewing machine, the women were able to help lift their families out of poverty. But critics say the microcredit model has been perverted by commercial greed in India, with reports of abusive collection methods and sky-high interest rates…”

Microfinance and the Poor – India

Sun co-founder uses capitalism to help poor, By Vika Bajaj, October 5, 2010, New York Times: “Vinod Khosla, the billionaire venture capitalist and co-founder of Sun Microsystems, was already among the world’s richest men when he invested a few years ago in SKS Microfinance, a lender to poor women in India. But the roaring success of SKS’s recent initial public stock offering in Mumbai has made him richer by about $117 million – money he says he plans to plow back into other ventures that aim to fight poverty while also trying to turn a profit. And he says he wants to challenge other rich Indians to do more to help their country’s poor…”

Telecommunications in Developing Nations

For the poor, cellphones can offer lifeline, By Cecilia Kang, September 8, 2010, Washington Post: “For the world’s poorest, cellphone technology carries opportunity, aid groups say, as text messages and other mobile applications have created a new platform to reach the most remote farms and crowded urban slums of Africa, Asia and Latin America. The Grameen Foundation, a Washington-based group known for helping women with the smallest of business loans, has two dozen people in a technology lab here developing mobile Internet applications to help spread its microfinance model. It’s warning farmers in Uganda about banana crop rot through text messages and collecting data on spreadsheet applications on smartphones…”

Microlending in the US

Micro-lender bringing his vision of helping the poor to D.C., By Jonathan O’Connell, April 19, 2010, Washington Post: “In 1976, Muhammad Yunus began making loans of a dollar or less to poor farmers and textile makers in his native Bangladesh. Thirty years later, he and the nonprofit micro-lender he founded, Grameen Bank, shared the 2006 Nobel Peace Prize. To date, Grameen has lent more than $9 billion to more than 8 million borrowers, almost all in Bangladesh. Now Yunus plans to bring low-interest credit to the poor and unemployed in Washington. Grameen America, a U.S. offshoot, is already lending in Queens and Brooklyn, N.Y., and Omaha and has lent to more than 2,500 American borrowers. Yunus says that although the United States is one of the wealthiest places in the world, the need for small, low-cost loans is evident in the number of Americans coming to Grameen to borrow money…”

Microlending and Bank Profits

Banks making big profits from tiny loans, By Neil MacFarquhar, April 13, 2010, New York Times: “In recent years, the idea of giving small loans to poor people became the darling of the development world, hailed as the long elusive formula to propel even the most destitute into better lives. Actors like Natalie Portman and Michael Douglas lent their boldface names to the cause. Muhammad Yunus, the economist who pioneered the practice by lending small amounts to basket weavers in Bangladesh, won a Nobel Peace Prize for it in 2006. The idea even got its very own United Nations year in 2005. But the phenomenon has grown so popular that some of its biggest proponents are now wringing their hands over the direction it has taken. Drawn by the prospect of hefty profits from even the smallest of loans, a raft of banks and financial institutions now dominate the field, with some charging interest rates of 100 percent or more…”

Microfinance Institutions

Microfinance’s midlife crisis, By Julian Evans, March 1, 2010, Wall Street Journal: “From humble beginnings, microfinance-a system of providing tiny loans and savings accounts to the poor-has grown into a global industry attracting the interest of large multinational banks. But the commercialization of the industry has sparked a fierce debate. Profit advocates highlight improved access to foreign capital and expertise; traditionalists say microfinance companies are in danger of becoming little better than predatory moneylenders. There is little doubt that microfinance is now big money. In 2008 it attracted $14.8 billion in foreign capital, up 24% from the previous year. For the first time, the majority of the money came from private investors-including pension schemes and private-equity funds-rather than governments, according to the World Bank…”

The World’s Poor and Access to Banking

Gates Foundation seeks to spur savings by the poor, By Steve Lohr, January 13, 2010, New York Times: “For decades, the microfinance industry has really been about microcredit – making tiny loans to shoestring entrepreneurs in poor countries. Taking deposits and creating savings accounts for the poor has gotten short shrift. The reasons were straightforward: funding for loans often came from international donors, and collecting small deposits seemed to be an inefficient headache for the microfinance bankers. The Bill and Melinda Gates Foundation is hoping to change that with $38 million in grants announced on Wednesday for 18 microfinance institutions. The goal is to spur the building of efficient models and systems for small savings accounts. The foundation hopes to reach 11 million people across a dozen nations in Africa, Asia and Latin America over the next five years…”

Microfinance and Poverty Reduction

Some fear profit motive to trump poverty efforts in microfinance, By Matthew Saltmarsh and Cat Contiguglia, August 28, 2009, New York Times: “From a warehouse in this scruffy suburb outside Paris, Jacques Attali has been building what he calls the ‘McKinsey’ of the microfinance world, a one-stop consulting shop for the sector. A consummate French insider, Mr. Attali, a former banker and presidential advisor, has recruited big names as board members and advisors, including Bernard Kouchner, co-founder of the Nobel prize-winning Médecins Sans Frontières, now the French foreign minister; and Muhammad Yunus, the Nobel-winning founder of Grameen Bank, a pioneer in the field of microfinance. He has attracted a host of corporate partners, like SAP, the German software company, and BNP Paribas, the largest bank in France. The result – PlaNet Finance – now has a staff of 700, about 10 percent based in Saint-Ouen, active in more than 60 countries. Since 1998, it says it has provided help to 140,000 entrepreneurs and set up $80 million in financing. It also has an investment arm and offers technical assistance to donors and recipients. Some services, like ratings, have become benchmarks; others, like insurance, are less successful. The expansion illustrates just how microfinance – the providing of small business loans to individuals, usually in developing countries – has become big business. Companies like PlaNet Finance and BlueOrchard, based in Geneva, attract not only public investors, but private ones seeking a “double bottom line” of socially responsible returns…”