On Microfinance

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India Microcredit Sector Faces Collapse From Defaults – http://nyti.ms/9FT7cj Ruh Roh. Very sad, but also: now what? I have been getting all hyped up about a future where microcredit is the bedrock of financial access to the extreme poor. As I’ve learned more and more about the global financial system, I have increasingly lost faith in the ability of the big economy and big bank system in leading to fight inequality. Joseph Stiglitz + Muhammad Yunus felt like a good place to start for a successful economic development worldview. Admittedly, I didn’t think too deeply beyond that. I guess this article suggests that the most important piece to keep in place, from an institutional perspective, is the tension between “maximizing interest rates” and “maximizing repayment rates”. I wonder what sorts of inputs lenders use when creating those algorithms, and how that varies by demographic and region. I would love to see some data there, if anyone’s got it. But I imagine the intangibles, or the “soft” side, like what impact a default or non-repayment has from a cultural perspective plays a huge part in the effectiveness in communities where it is a source of pride to be given a small loan or small savings account. Anyway, sobering article.

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