If you can make money at it, then banks are interested

ARTICLE: "Entrepreneur Gets Big Banks to Back Very Small Loans: Microlending-for-Profit Effort In India Draws Business From Citigroup, HSBC; Ms. Dobbala's Baby Buffalo," by Eric Bellman, Wall Street Journal, 15 May 2006, p. A1.

Boy, this is an article I've been waiting to blog for a long time. Like most people concerned with development in emerging and less-developed economies, I've long liked reading the various success stories associated with microlending, especially the high involvement of women. But so long as it remained a boutique sort of aid-ish thing or limited to just local banks, I felt like it could only go so far. Access to OUTSIDE capital is what makes the world go around, not just making do with local capital markets. You build a better mousetrap or whatever and--yeah--you do want the entire world to beat a path to your door.

So you think about all the ways that banks in the Core are constantly trying to pinch you for this or that piddling fee, and you say to yourself: "If they're that grubby about sweating every little nickle and dime outta me, why don't big banks get interested in microlending in developing economies? Certainly they can squeeze nickles and dimes or rupees or whatever out of them just as effectively?"

Because South Asia has always been sort of ground zero on microlending, thanks to pioneer Grameen Bank in Bangladesh, which started doing this in the 1970s (that's what I mean by disconnected: see how long it took for the news to reach Citigroup?!), you figured the first signs of such interest would occur there (and especially India more than Bangladesh because so many banks have grown smart on that market thanks to outsourcing service stuff over the years).

So you see a nice article like this and it makes your capitalist heart sing!

I mean, it's just so Prahalad-ish and all bottom-of-the-pyramidy.

Plus, when things succeed in globalization-in-a-microcosm India, it makes you truly optimistic. Like I said in PNM: when globalization fails or falters in Russia or China, we fall back to all sorts of excuses why it couldn't work. But in India, most of those excuses just don't hold, so failure to launch there is real failure, casting far more in doubt than similar failures elsewhere.

Conversely, success in such endeavors in India is really great, signaling a lot of potential elsewhere.

So... you think about a Citigroup and you say to yourself: give these guys some time and I bet they have a best practices model, largely cribbed from Grameen, on how to swoop into an impoverished situation and set up all sorts of microlending stuff fairly fast--you know, just to justify the initial outlay.

So why not sign them up for Development-in-a-Box? Why not intrigue them with the possibility of all those tiny loans in some postconflict Backwardistan or some postdisaster Costa Whereverica?

I mean, the conceived leap from ATM-saturated America to microlending India has got to be wider than the one from microlending India to one of these situations.

Hell, why not just preload hardy ATMs you can just plop into recovery situations that run on solar power and have sat-uplinks and are all preconfigured to loan money in tiny amounts, assuming some bio-identity check that just so happens to double as a... well, you get my drift. Money goes into people's pockets for immediate and legitimate uses. You make it all auditable in real-time records. Sure, you'd get some abuse, but think about how you might widen the pool of potential, highly-needy and highly-motivated borrowers.

You read the story about the pioneering banker in India and you see that he modeled his approach on McDonald's--yes, McDonald's and their ability to use "technology and standardized systems to wring enough efficiency out of each tiny transaction to lower costs." Great story, right down to the start-up funds for this pilot from the Ford and Rockefeller foundations. But again, way cooler when you see Citigroup and HSBC getting interested.

The article says Citigroup won't reveal it's numbers, but that local microlending pioneers estimate that the bank has--on its own--triggered a new flow of over $100 million to microlenders in developing markets, or a rough tripling of that number from just last year. Lots of this growth has been in Latin America and India.

This Mr. Vikram Akula, 37-year-old founder of the SKS Microfinance, who is the star of the article, already has plans to (gasp!) start peddling health and crop insurance similarly, plus "use Visa's card technology to make microloans as simple and inexpensive as getting cash from an ATM."

This is all we're talking about--Steve and I--with Development-in-a-Box: cherry-picking the best stuff that's already out there, marrying it up with the soft and hardware that's readily available, and preloading it into templates that DiB simply hands over to the locals, along with the training.

Yes, yes, it'll never be as easy as we make it sound, but it also will never be as hard as your preconceptions of the Gap make it seem. One thing is sure: we make it hard now by the approaches we use, and there's so much more we can do to improve our efforts.

And yeah, this is exactly God's work.

Comments

[TM Lutas]

Microlending is like all lending in that it requires a certain amount of trust. As I recall, the Grameen original experiment demonstrated that you could trust a group of poor women to make sure that loans were paid back even if you couldn't trust one individual. That sort of trust mechanism is systematically stripped as part of the control mechanism that dictators/oligarchs impose on their populations. Nobody trusts anybody so conspiracies to overthrow the government generally can't get enough participants to actually pull it off. It's a recurring theme of Gap nations of all types. In the worst examples, you can't even trust family.

Technology has to be part of the fix but the hard part is information input, getting people to spill over who's trustworthy and who isn't, making sure those information flows are reliable and lending accordingly. Here, the military can help start the process because they assemble these sorts of dossiers on people all the time (they aren't unique as a source but they're a big, early available input). Cpt. so and so knows that village head A is reliable and village head B is a boasting blowhard. If that information gets into the hands of the microlenders, you have a very nice virtuous circle, creating a real incentive to cooperate with Core military because they help establish your credit, both individually and collectively. And since Citigroup doesn't depend on DC funding cycles, the problem of "running out of money" so destructive in Iraq just doesn't arise.

The invitation to DiB for Citigroup and the rest of the microlenders should read "make money faster, safer, and earlier in a country's development cycle". Watch them beat a path to your door.