Yesterday i read an article in The Mint about the securitization of microfinance loans by Deutsche Bank AG. The article was upbeat about the prospects of microfinance being linked with the world of mainstream capitalism and the possibility of using this to alleviate poverty. However, the piece also gave a very cautious note about the perils of modern day finance and how it can possibly lead to the takeover of microfinance by greedy i-bankers.
In a report published by the BusinessWeek magazine many months ago, in Latin American countries such as Venezuela, microfinance has failed to make the planned impact because of the collusion between consumer good companies such as LG, Samsung and microfinance firms. In a very disturbing example, the loans are shelled out by microfinance firms to the poor people who are lured by these producers into buying high-end LCD screen TVs that are practically useless given the cost incurred. When the debtors default, local goons are hired by the finance firms to force the debtors into repaying the debt.
While microfinance moves from an NGO based model to a for-profit model, financiers need to keep in mind the basic principle behind the foundation of this industry. People need to understand that while the US housing crisis was more or less due to the misuse of government policies and lax monitoring of Wall Street dons, a crisis of this sort in microfinance will not just impact the capitalists again but the intensity of it will be exponentially ampilified for the poor helpless people who find it hard to eke out 2 square meals a day without some assistance.
While pursuit of profit is indeed a noble goal in itself, the pursuit of inclusive prosperity with the less fortunate is nobler.
In a report published by the BusinessWeek magazine many months ago, in Latin American countries such as Venezuela, microfinance has failed to make the planned impact because of the collusion between consumer good companies such as LG, Samsung and microfinance firms. In a very disturbing example, the loans are shelled out by microfinance firms to the poor people who are lured by these producers into buying high-end LCD screen TVs that are practically useless given the cost incurred. When the debtors default, local goons are hired by the finance firms to force the debtors into repaying the debt.
While microfinance moves from an NGO based model to a for-profit model, financiers need to keep in mind the basic principle behind the foundation of this industry. People need to understand that while the US housing crisis was more or less due to the misuse of government policies and lax monitoring of Wall Street dons, a crisis of this sort in microfinance will not just impact the capitalists again but the intensity of it will be exponentially ampilified for the poor helpless people who find it hard to eke out 2 square meals a day without some assistance.
While pursuit of profit is indeed a noble goal in itself, the pursuit of inclusive prosperity with the less fortunate is nobler.
