Tuesday, October 27, 2009

Preparing to return to a long dark winter (and a few notes on microfinance)

Perhaps the recent cold miserable winters have something to do with the fact Americans are starting to lose interest in global warming (via the Opinionator, NYTimes). Myself, I'm just dreading my returning to the cold from the considerably more tropical climes of China (not to mention Cody) though it's been a rather busy visit and I haven't yet finished everything I've wanted. As something of a PSA, here's a posting on how to put together an emergency winter kit.

I also wanted to welcome any new readers (I seem to have gotten a small spike) from a recent mention on the MicrofinancePracticeGroup listserv (Nabble) where I'm a sometimes and reluctant participant. It certainly wasn't publicized in the most complimentary of ways, but appreciated none the less.

While I'm not convinced that I'm not an ideologue - particularly if that means I'm driven by a set of beliefs and ideas, but I'd like to think that in the very least I'm pragmatically so. And insofar as my interest in microfinance and development goes, I have a few strong opinions as to what will work and what won't based on what has worked and what hasn't. While I can't say that it's changed much since I first became a participant on the group, and while there are clearly a number of notable exceptions, I find it most unfortunate particularly for those in under developed countries, that for some participants, microfinance is nothing more than another form of social activism where the laws of economics and reality have no place.

For me, the most fundamental question in this debate over high interest rates and profitability in microfinance is not whether I or anyone else feels uncomfortable or finds it "reprehensible" or "indensible", but rather, does it work? Paradoxically, the evidence seems to suggest it does (WSJ) - just as economic theory suggests it should. Further, I find it strange that these same social advocates refuse to acknowledge that a choice often exists between the provisioning of financial options and high(er) interest rates.

Borrowers readily accept these options given that the alternatives are not only worse, but in the case of working capital loans they're able to achieve returns significantly greater than the interest rates charged. Microfinance is also not a panacea. It's not the ideal intervention in countries where the basic preconditions for economic do not exist - ie political stability and property rights, it's an accelerant to the seed of entrepreneurship that exists in all cultures because of the search to build a better world not only their progeny but the rest of us.

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