« Overselling of Microfinance-Becker | Main | Inequality in Income and Wealth—Posner »

01/23/2011

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

Kevin McGilly

Posner admits that he does not understand how Grameen Bank works ("I don’t understand how the bank attracts equity capital"), but dismisses it nonetheless ("Yunus's mysterious nonprofit-profit model of microfinance cannot attract substantial capital"). How does Posner *know* that something he does not understand cannot work?

In this country, credit unions return their profits to their members, just as Grameen Bank does. Credit unions attract substantial capital, just as Grameen Bank can and does. Credit unions perform better on most key banking metrics than the big publicly traded banks -- they have lower default rates, they fail less often, they are better managed, and they don't require government bailouts.

John

Posner again treats us to meaningless drift, consisting of nothing more than his uninformed bias and prejudice.

Has Posner never read Peter Drucker?

If he had he would know that there is no such thing as "micro-finance" and in particular there is no rule of economics, or anything else, that defines, micro-finance in any meaningful way.

Micro-finance is pr, branding, advertising, not "economics."

There are only customers and a "theory of the business" (business model) (Drucker, Managing in a Time of Great Change) that delivers a product or service to a customer at a profit (if micro lending doesn't make a profit, its not a business, it is some form of charity).

What micro-finance is a Wal-Marts (only not with everyday low pricing) of loans. Loans targeted to a segment of society that heretofore no one thought could be served at a profit.

Can it work. Yes. Apple Computer was started on a micro-loan of $1,300.00 dollars in a garage. Goldman Sachs started in the 1860s making micro loans to businesses thought to be uncreditworthy in New York City.

Can a nation be built on borrowed money? Yes. Both the United States and Hong Kong were built on money borrowed from the Scots.

Does it take more than just loans? Yes, but we all already knew that.

Last, does any fact justify this statement, "commercialized microfinance seems increasingly unlikely to have substantial social benefits."

No. Before Sam Walton, using Posner's elitist mentality, there would have been no social benefit in a Wal-Marts. If you asked the heads of Famous Barr, the May Co., Marshalls, and a thousand other firms killed by Wal-Marts, when Walton started in the 1960s whether anything would have come of it, they all, like Posner, would have said no, such a firm will have no social benefit and cannot make a profit.

No one has done it yet, but that doesn't mean it can't be done or that entrepreneurs shouldn't have the freedom to try.

Jim

Surprise, surprise. Human nature and the law of unintended consequences. How can a microfinancier exist by charging 20% interest on loans to enterprises with profit margins of 6% or less. Now let us see, would I invest in the lending bank. Probably not.

Taobao in English

Education is a progressive discovery of our own ignorance.

http://www.datecover.com

This is just one more example of the flawed system we find ourselves in, and one more way for financial establishments to work around the system, lend money, then compound the global economic issue all over again.

Jack

"The idea of borrowing one's way out of poverty is passing strange. And I am unaware of any historical examples of nations that climbed out of poverty on the backs of small entrepreneurs financed by credit.” I noted that the Grameen Bank had a surprisingly low default rate and pointed out that it “does not have written loan agreements and does not sue defaulters or invoke other legal remedies against them."

.......... Ha! Establishment fear of banking going "internet?" Ha-ha! ....... "the carpet too is moving under you......... it's all over now baby blue......." B. Dylan

More seriously borrowing and "climbing out of poverty on the backs of small entrepreneurs is exactly how our nation, Korea after the war, China and others HAVE grown. Koreans and other have used some informal "banking" (when and where true banking hardly existed) of pooling assets in an extended family or other group with one being "up" for starting their business, after which another will get a turn.

Our system of "micro-finance" has been the one sided arrangement of millions of small savers loaning their hard-earneds to the bank or stock market where they've been aggregated and re-loaned at considerable profits to the bankers. Worked pretty good too for a long time when banking WAS selective and executed by ethical and skilled bankers who loaned within reasonable multiples of "their assets" ie deposits and investors.

Now what was that about lending with no collateral but still finding most folks paid them back? Kinda like credit cards given out freely to all but those of very poor credit history, including making sure to get them into the hands of HS graduates and college kids........ based on their "collateral?" and "payment history?" No....... just speculation on the odds.

As for the Grameen Bank it's interesting to look over their website which includes 16 guidelines for living a successful life. The seem to be starting a mutual fund, so like the credit unions, Kevin describes above, much of the profits of the operation can be plowed back for the benefit of the Grameen members. Grameen's Yunus, was recently awarded a Presidential Freedom Award warns that the micro arena is not an easy road for the profit minded.

Ahh, yes...... it may well be that paying back for the benefit of a community creates a stronger incentive than that of enriching profit seekers insisting upon, and pushing the entrepreneur under with usurious rates.

Jim: It's been my experience and observation that most micro-businesses have nothing that would qualify as a "profit". Instead, even in our wealthy nation what few businesses are left to the individual return a wage for the owner and the employees. (One of the groups most imparted by not being able to afford our current H/C delivery system.) No, these micro-loans are about surviving vs starving.

I'd urge you to look over Kiva.Org (an online micro) to see what kind of loams are requested and how they are employed. Several years ago I gave Kiva investment coupons at Christmas. The recipients loved the gift and have since re-invested the small amount several times over as the money has always been repaid. Perhaps the micro area "works" because of the good feelings of having helped a mother of three in some poor nation buy what she needed to begin a beauty salon or other enterprise. The investment allows her to "profit" by wielding the tools of her trade.

Ummmmm....... I suppose it would be a bit impertinent, at this point, to mention the amount of capital lost (and being lost) by the pro-money changers? Enough to enable a billion or so micro-pioneers?

Forest Bush

Without the controls, there will undoubtedly be a good deal of fraud, and improvident borrowing without fraud. With the controls, the amount of lending will be curtailed. But with or without controls, the amount of lending will be limited by the very high default rates that can be anticipated unless there is very careful screening of would-be borrowers. Interest rates will remain very high and will strangle many of the businesses that rely on microfinance. Microfinance may turn out to be a niche service, with little overall impact.

Marle Robo

Microfinance seems to be the theory and rational compelling and fueling Arizona illegal immigration crackdown: http://lawblog.legalmatch.com/2011/01/24/arizonas-other-controversial-law-punishing-employers-who-hire-illegal-immigrants/

Krista

I heard that the net profits of India's largest microfinance institute SKS Microfinance shrunk by more than a third for the quarter ended December 31 over the last period due to reasons of higher provisioning as published by the company's report.

agent taobao

I just get all worked up , and I stew around!

Ruth Murphy

The number of microloans made in India rose from 10 million in March 2007 to 26.7 million in March 2010. By the end of 2009 total microloans stood at $70 billion, half of them in India and Bangladesh. But a series of suicides by microborrowers in the fall of 2010 in the Indian state. What a Incredible stat. This is hard to believe...

Thanks

Fakeworkstudy

Hello everyone,
I'm a student at BYU. My fellow students and I are doing a internship project on strategy alignment and penetration. Help us out by taking a brief survey at the following link: http://qtrial.qualtrics.com/SE/?SID=SV_9ZI32VgYOg7mcL2

Thank you,

Tim

Youtube Movie Maker

this article explain completely, thank you.

Micro Credit

It's sad, in France the law just changed to allow the micro credit between individuals, but the news only talk about the excesses and failures of micro credit. Results: People who have been tempted to build their businesses through micro financing have doubts and fear of life disaster scenarios ...

chloe

Chloe Handbags affect most women’s feeling. Chloe Bag is catching with soft leather and elegant style. Chloe is a brand of well-deserved reputation and there is no question about it. http://www.discountchloe.com

Gaston Cantens

Microfinance has continued to expand since 2006. The number of microloans made in India rose from 10 million in March 2007 to 26.7 million in March 2010. Without the controls, there will undoubtedly be a good deal of fraud, and improvident borrowing without fraud.

Total Protect Home Warranty

Well i think that a borrower has to have confidence in the project for which he is seeking microcredit in order to be willing to assume the burden of servicing his debt...

Alley

Undeniably believe that which you said. Your favorite justification seemed to be on the internet the easiest thing to be aware of. I say to you, I certainly get annoyed while people think about worries that they just don't know about. You managed to hit the nail upon the top and also defined out the whole thing without having side-effects , people can take a signal. Will likely be back to get more. Thanks

Health Lab

This is really interesting, You're a very skilled blogger. I've joined your feed and look forward to seeking more of your wonderful post. Also, I've shared your site in my social networks!

Health Lab

This is really interesting, You are a very skilled blogger. I've joined your feed and look forward to seeking more of your wonderful post. Also, I've shared your website in my social networks!

Spinal Stenosis

I loved as much as you will receive carried out right here. The sketch is attractive, your authored material stylish. nonetheless, you command get got an edginess over that you wish be delivering the following. unwell unquestionably come further formerly again since exactly the same nearly very often inside case you shield this increase.

Danyme

We are a group of volunteers and opening a new scheme in our community. Your website provided us with valuable info to work on. You have done an impressive job and our entire community will be grateful to you.

Safe

I loved as much as you'll receive carried out right here. The sketch is attractive, your authored subject matter stylish. nonetheless, you command get got an impatience over that you wish be delivering the following. unwell unquestionably come more formerly again as exactly the same nearly a lot often inside case you shield this increase.

HMS Home Warranty

The government of Andhra Pradesh has imposed strict limitations on microlending, and the Reserve Bank of India has proposed that similar controls be established throughout India..

Acne Care

Human nature and the law of unintended consequences. How can a microfinancier exist by charging 20% interest on loans to enterprises with profit margins of 6% or less. Now let us see, would I invest in the lending bank. Probably not.

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been posted. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Become a Fan

May 2014

Sun Mon Tue Wed Thu Fri Sat
        1 2 3
4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 27 28 29 30 31