Anyone hear Jeremy Vine talking about micro economics today?

[ThePosieParker]

It was a way of loaning people money in places like Malawi and Ghana, the people loaned to were women and groups of women. I thought it was interesting that women are trusted more.

Anyone know anymore about it?

Yes, I agree that these people would otherwise not get loans or credit. But that is why they need really tight regulation, because they have a monopoly position in loaning money to people who find it difficult to access credit. The danger is what happens to the people in Atlanta with sub-prime mortgages or what happens to people who borrow from loan sharks. The outsourcing of the debt to a money collector who puts pressure on the family and the reporting of suicides by people unable to pay their loans back is worrying.

It would be safer if governments were making these microloans rather than business people earning profit from the poor.

Here is something from the Asia Times about Yunus

www.atimes.com/atimes/South_Asia/LL04Df02.html

It is obvious from the article below that much more regulation is needed.

www.dw-world.de/dw/article/0,,6405968,00.html

The vicious circle of debt, coupled with exorbitant interest rates as high as 50 percent, have reportedly led to 88 suicides in the state.

The state government has responded with an ordinance placing severe restrictions on microfinance operations, from interest caps to a ban on door-to-door collections of repayment. Moreover, politicians in the state are openly encouraging borrowers to refuse repayment of their loans.

Muhammad Yunus was the pioneer of microfinance at the end of last century
But this kind of an approach will do more harm than good, says Tara Thiagarajan of Madura Microfinance, a non-banking finance company that provides micro loans to the poor.

She says that although there have "clearly been a lot of dirty practices, the reaction is disproportionate."

"To say 'don't pay back' is actually detrimental to the entire system of lending. Once you create that public perception that there?s no need to pay a loan, then I think even those who want it for genuine reasons will now in the future not have access to the money. I hope that we can get past this as an industry and that it will be more responsible. I think that would be much better than ordinances and regulations and things like that."

I don't blame the politicians for stamping down. The "industry" don't like talk of "ordinances and regulations and things like that". That might cramp their style and their profits.

It looks like the politicians in Andhra Pradesh are not fans of Gordon Brown's "light-touch regulation" policy. Good for them. I doubt they will be knighting any Fred the Shreds soon.

The people of the state of Andhra Pradesh are probably thankful that the state has no 'New Labour' party.

Anu Mohammad, professor at the economics department of Jahangirnagar University in Bangladesh, told Asia Times Online that although most micro-credit financing institutions had become ?corporate successes by initiating businesses following the combination of foreign grant funds with the unprecedented amount of capital accumulated?, they all failed at achieving poverty eradication, the primary motives behind micro-credit financing.

Citing his own research, he said, ?Only 5-10% of loan-takers consist of success cases. However, these households cannot be described as impoverished as they have other sources of income.

?Over 50% of loan-takers have been plunged into serious financial quagmires as weekly instalments are regular and repressive, when these households are usually facing deficit income. Most loan-takers ultimately seek further loans from village loan sharks to repay the micro-credit loans.?

Fearing the controversy surrounding GB and Yunus will very likely tarnish the global image for Bangladesh, he added: ?This was inevitable. The lack of transparency and accountability always gave these organizations the leeway to operate in the ways they wished. Their operations and transactions are always shrouded in mystery. However, through their local and international influence, such organizations always manage to keep intact their public image as society?s saviours. That phase is gradually coming to end though.?

claig, I am not exactly sure the point of your posts, as you haven't made one? Is it that microfinancing is a bad idea? Is it that no one should just microfinancing?

As I said earlier, while I am very supportive of microfinancing, it is not the only way forward and that's why I continue to support mainstream charities as they have important work to do. In addition, microfinancing has had different impacts in different places in the world. There are just as many articles that one could link to, that indicate the positive impact that microfinancing has had, particularly on women in Africa.

claig, I am not exactly sure the point of your posts, as you haven't made one? Is it that microfinancing is a bad idea? Is it that no one should just microfinancing?

As I said earlier, while I am very supportive of microfinancing, it is not the only way forward and that's why I continue to support mainstream charities as they have important work to do. In addition, microfinancing has had different impacts in different places in the world. There are just as many articles that one could link to, that indicate the positive impact that microfinancing has had, particularly on women in Africa.

I didn't know anything about microfinancing and believed what I had been told, until I read the article linked to by SardineQueen. Since then I have looked into it further, and it seems that it is not all that we have been told. Reflecting on it, that is not surprising as people are profiting by lending to others at high interest rates.

I am not making any points, just highlighting some of the things that I have found out about it by googling for 5 minutes.

Okay, is that all you were able to find? Interesting. It seems like you haven't been able to find anything positive about microfinancing. If you're implying that I and others who have told you about microfinancing are personally profiting by lending money to others at high interest rates, I suggest you spend a bit more time googling. That may for example reveal that kiva is a not for profit organisation in the us and isn't registered as lender and therefore the lenders can't charge interest. Interest is charged by the consulting cos, effectively as an arrangement fee.

I'm not suggesting that you are profiting. I think the owners of the microfinance companies are profiting. My guess is that some are very rich. I don't know what kiva is. I only googled microfinance.

Reading more about it, I prefer nonprofit organisations and charities to organisations that make a profit and launch themselves on the stock market.

Mr. Khosla, the co-founder of Sun and one of the world's richest men, invested in SKS Microfinance. He says the following:

'Mr. Khosla says that he is not completely opposed to charities ? that his fund may even donate to some nonprofit entities. But he says he is generally skeptical that nongovernmental organizations can accomplish much because they tend to drift away from what their donors wanted them to do.'
?I am relatively negative on most N.G.O.?s and their effectiveness,? he said. ?I am not negative on their intentions.?

I am less sceptical of NGOs and charities rather than profit making organisations when it comes to helping the poor.

www.nytimes.com/2010/10/06/business/global/06khosla.html

'Mr. Khosla?s advocacy of the bootstrap powers of capitalism is part of an increasingly popular school of thought: businesses, not governments or nonprofit groups, should lead the effort to eradicate global poverty.'

I'm all for capitalism and business. But when it comes to helping the poor on this earth, I think it is the responsibility and duty of government - government of the people, by the people and for the people, not mega-rich capitalists who earn a profit.

I see where you're coming from, unfortunately corruption and nepotism is rife in some countries so while it is clear what the government should do, it doesn't happen in a lot of cases. Quite frankly, its why Oxfam etc keep having to go back or stay in a country. If governments did what they were supposed to in the first place either with tax revenues or with imf monies, some of these countries wouldn't be as poor as they are. While I will happily donate to Oxfam or do microfinancing, I wouldn't donate to a government. The other thing is that even when governments do distribute money, women almost always never benefit so it doesn't make a long term permanent difference because in a lot of cases men squander the money.

Yes, very good point. I forgot about the levels of corruption in some governments. It is a shame that Oxfam and all the other agencies aren't given more control, but that can never happen in the real world. Yes, I agree that many men would probably squander the money, and it would be better to give it to women who would be more likely to be responsible and make a real change and really help families and society.

Care international also do a microfinance scheme. I have only just found about about this idea, so I am interested to learn more.