Microloans are very hip. For Christmas last year, my aunt gave money in my name to some kind of microloan non-profit, and she’s usually very up on what the totebaggers are doing. It all seems like a great idea to me, and when I look at my own city, I sure wish there was some way to use the same principles here in the US — I sure wish local government could help out with small amounts of money to small business people instead of going for high-cost home runs. I’ve had conversations where “microloan” (temporarily) became one of those buzzwords like “tipping-point”.
Indian microfinance lender SKS goes public, raising $358 million and making its founder dynastically wealthy. The decision was controversial, and was largely responsible for an entire non-profit organization, Unitus, disappearing. When that kind of money is at stake, noble non-profit principles have a tendency to evaporate.
Steven Schwarcz of Duke University, has a bright idea: why not use the magic of securitization to provide funds for microfinance lenders? “Such disintermediation,” he writes, “would enable microfinance loans to be funded directly from low-cost, and virtually limitless, capital market sources”. What could possibly go wrong?[….]
My feeling is that good non-profit microfinance organizations do exist, and that they should be supported with grants first, with technical expertise on things like underwriting and growth strategies second, and with local-currency funding third. If someone tells you that you can help bring millions of people out of poverty while still making a profit on your investment, your first reaction should be that they’re selling something which is too good to be true.
People like to make money and feel morally superior at the same time. I throw up in my mouth thinking of western investors patting themselves on the back for turning third-world small business people into debt slaves, and I hope that’s not where this is all headed.