A book due to be published this week claims that banks, including Deutsche, Citigroup and Standard Chartered, are placing cash into funds that make millions from charging up to 200pc interest on small loans.
So if microfinance does indeed alleviate poverty then we\’d like lots of people sending their money in to finance microfinance. If they are profiting from that then all well and good: who gives a shit about profits as long as the poverty is being alleviated, eh?
If microfinance isn\’t alleviating poverty then of course we need to rethink the entire process.
But here we\’ve a third view: yes, poverty is being alleviated but it\’s immoral that anyone should profit out of poverty being alleviated. Which is …..odd.
The background here is that the banks are not doing the doorstep lending themselves. Rather, the microfinance institutions are doing that. But they\’re looking for more cash so that they can scale their activities. There are two logical sources: grants, charitable gifts and so on, or good old straight access to the private financial markets. Those latter are obviously larger, meaning that if they can meet the standards then they can scale more quickly and more poverty can be alleviated faster.
What the banks are doing is looking at the insitution, the microlender, as a whole. Is it worth making an interbank loan, subscribing to a bond issue? This would be charging something close to a market interest rate. I don\’t know what they are charging but it\’s pretty typical large bank lending to small bank sort of stuff.
And this is what we would like to be happening of course. If microfinance is successful then we\’d like it to expand and expansion is best funded by access to private capital.
And yet here we\’ve someone complaining about precisely that.
Go figure, hunh?