Busted: Bankers and The Global Economy

April 23, 2008

Microcredit: Lending to Entrepreneurs

Filed under: banking, investment — Tags: , , , , , , , — digitaleconomy @ 10:27 am

U.S. banks have been quietly considering getting into the microcredit market in the effort to be more visionary in their growth. Over the long haul, bankers see the growing microcredit market as a possible threat to their supremacy in the financial sector.

Banks in France and Bangladesh, notably banks that began as village banks are deeply linked to the well-being of their community. For U.S. banks, that mindset is a considerable change in concept. The concept started small. Small amounts of money were loaned to the rural poor trapped by an old system of moneylenders and politics. The concept has grown into a bankable system that allows the poor to help themselves.

Loaning to people without collateral is exactly the opposite approach that banks use when extending credit. Some bankers like Muhammad Yunus believe that credit should be considered a human right. He created his bank by turning banking upside down. Yunus likes to loan to women and to people with no access to loans. He considers attitude as the collateral of banking. He loans to people with self-respect and trust. He extends the same courtesy, working around the world to benefit people that need money most, while working to smash unfair banking laws. He is a Robin Hood of bankers.

Goldman Sachs has already taken steps to see if they can make a similar program profitable for themselves using the same models and ideas that some French bankers and microlending institutions are using. They plan to throw $100 million at an experiment to finance microlending outside of the United States. Is the plan being deployed as a method or a mindset for Goldman Sachs? Will Goldman involve themselves in a loan sharking business with 100% interest rates like Banco Compartamos?

You may be able to make money without the desire to help others, but lenders like Muhammad Yunus aren’t just about making money. You may feel the same way. You desire to provide assistance to someone that needs help with a good idea to lift and elevate their life.

Finding a grass roots way to alleviate and eliminate poverty is the goal and heart of original microlenders. A large measure of philanthropy has been important in the past. Finding respectable organizations to work through is always an initial concern. Organizations like Kiva are using the power of the internet to facilitate one-to-one connections that used to be prohibitively expensive or impossible. You can offer whatever money you have available to make a difference in the life of someone else. MicroPlace is a new venture owned by Ebay that is registered with the Securities and Exchange Commission. On the surface, both organizations appear to be the same, but are quite different.

Lenders on MicroPlace invest in microfinance by purchasing securities. Funds generated by these sales are then invested in microfinance institutions around the world. The institutional investors receive their loan plus interest. The people who purchased the original securities are then paid back.

Kiva is a privately-owned non-profit organization. As a result, lenders on Kiva receive their loans back without interest. Lenders provide capital to microfinance institutions directly, who then lend directly to clients.

Microcredit Ratings International Limited has taken the time to evaluate microlending institutions. Other valuable sources of microlending information are the Virtual Library on Microcredit as well as USAID.

Regardless of what bankers believe, you can get in on the action by helping someone else out with your pocket change. You can become your own private banker for small loans and even make money doing so if you choose.

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1 Comment

  1. Microlending is a good idea.

    Pingback by lendingnews — April 23, 2008 @ 2:36 pm


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