Sunday, October 19, 2008

Credit crunch, Microfinance etc.

An article that appeared in the Times of India, republished in Micro Capital:
Big financial institutions of all sorts are in dire straits across the globe. But one category remains unaffected - micro-finance. Even as the global financial system freezes and giants like Lehman Brothers collapse, micro-finance institutions (MFIs) are expanding unfazed. Famous financiers face defaults big enough to wipe them out, but MFIs report virtually zero default.
The article goes on to say the following:
Microfinance, by contrast, has no collateral at all. MFIs deliberately keep loans small, well within repayment capacity. Some MFIs give first loans of just Rs 5,000 a year. Those who repay qualify for a higher second loan, maybe Rs 7,000, and the third loan can be still higher. But MFIs set an absolute loan limit, ranging from Rs 12,000 to Rs 25,000, depending on local economic opportunities, to guard against over-borrowing. Wall Street needs similar safeguards.

No comments: