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"Grameen Bank provides small loans to poor people. It seems very possible that this NGO (and its many imitators) will be put out of business by commercial banks
by carbon8 17y ago
"Grameen Bank provides small loans to poor people. It seems very possible that this NGO (and its many imitators) will be put out of business by commercial banks."
Traditional, for-profit banking simply can't, which is the entire point. Even when microfinance institutions lean further toward for-profit, they end up more and more like traditional banks making traditional big loans.
And that's the way it actually moves, with microfinance institutions edging toward becoming more commercialized, and when they drift too far away from poorer clients, new micro institutions will likely come in to take their place. In other words, the shift naturally moves in the opposite direction.
- skybrian 17y agoCompartamos in Mexico is a for-profit bank making microloans. There's some controversy about that: http://www.nytimes.com/2008/04/05/business/worldbusiness/05micro.html http://www.nytimes.com/2008/04/05/business/worldbusiness/05m...
- deleted 17y ago[deleted]
- carbon8 17y agoIndeed, it's former NGO that aggressively went for-profit. That's a good article and sums up some of the major debates around latin american microfinance. The problem with for-profit microfinance is that, as a general rule, financial performance increases with loan size, and that's why commercialization is a cause for concern, along with a lot of the other baggage that comes with commercialization like pressure to increase profits and employee incentive programs that negatively impact service toward small clients. Compartamos accounts for the problems of the small loan market (notably the inability to determine which borrows are good or not) the same way moneylenders needed to before them, by charging very high interest rates. But this ends up screening out lower end borrowers, hence the discussion of "mission drift." Commercial banks have long dabbled in elements of microfinance, but there are fairly concrete obstacles, mostly operational and information-related issues, that make it tough to be profitable, and even tougher to approach it as strictly for-profit while continuing to be actual microfinance.
- billswift 17y agoWhich strongly suggest microloans don't really produce that much actual value.
- carbon8 17y agoNo, it absolutely does not suggest that at all. For example, ROSCAs are inherently non-profit, they don't even hold money at all, and yet provide needed services to their users in ways that for-profits simply can't.