A natural but welcome tension in micro-loans

GLOBAL BUSINESS: “The Big Trouble In Small Loans: As large banks pile into microfinance, will profits get ahead of people?” by Barbara Kiviat, Time, 16 June 2008, p. G1.

Beautiful little experiments in development almost always succeed, because special effort is made and the scope is limited. The trick is always evolving the small-is-beautiful answer into something scalable.

This is where microfinance is heading now. You can say that the big banks will automatically ruin the previously proven answer, but that answer was just about showing the potential market and not actually exploiting it. Eventually, the main goal must be addressed: serving the underserved market.

For now, the big global banks will concentrate on the easiest markets (low hanging fruit), bypassing the harder spots, but that’s only natural and expecting otherwise is missing the point: a critical mass is required for this to work large-scale and commercial. So you see big players concentrate on Eastern Europe and Latin America and the bottom billion of Asia and Africa are still left behind—for now.

There are natural and proper concerns about creating bad debt, but since the original problem was the inability to incur debt (no access to credit), at some point you have to subsume the “social impact” thinking under the scale requirements.

Will there be scandal down the road? Expect it. Anything popular always gets abused.

But it beats the alternative.

Comments

[Michael]

I'm wondering what kind of blow-back the good lenders are going to receive when the back lenders collapse:P Is the availability of credit for these people going to be permanent, or judged a bad idea regardless of initial experiments?