Sunday, October 19, 2008

What micro-finance institutions can teach Wall Street - S A Aiyar

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.

This is extraordinary. Big financiers lend against collateral, a back-up if their borrower defaults. But MFIs lend with no collateral at all. Big financiers lend to the most creditworthy corporations. MFIs lend to poor women whom nobody in history considered creditworthy before. Yet, the secured loans to big corporations are bombing, while unsecured loans to poor women are being repaid in full.

How so? What lessons does micro-finance have for Wall Street? I distilled some answers from feedback from promoters of three MFIs that i myself have a stake in: Shubhankar Sengupta of Arohan, Kolkata; Rakesh Dubey of Sonata Finance, Allahabad; and Manab Chakraborty of Mimo Finance, Dehra Dun." To read more, please, visit - The Times of India

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