Tuesday, December 23, 2008

Some articles on microfinance

India Development Blog has links and discussion about several articles on microfinance and has a post about CMF E-library and recommended articles. There are a couple of posts on a readable overall view by Tim HarfodThe battle for the soul of microfinance. One excerpt from Tim Harford's article:
"Microfinance is a way of harnessing market forces to bring basic financial services to the poor, but many microfinance institutions do much more than that. Using donor funds or reinvested profits, coupled with their reach into remote villages, they provide subsidised education, healthcare and business advice. There is a risk that commercial logic could threaten these subsidised services by repelling donors or poaching the best customers. There is also the risk that competition misfires, leaving the poor paying higher interest rates, rather than lower ones."
He also that there is lack of serious research in to what works and lack of tranparency about interest rates. However even APRs (annual percentage rates) as high as 200 perecent proved successful with some classes of customers. There is much more in the article. In another post Microfinance Must Reads there is link to a surveyHow Do Microfinance Clients Understand Their Loans?. Finally, the postOne Argument Against Microfinance discusses a follow up to Tim Harford's article by another economics professor Milford BatemanMicrofinance’s ‘iron law’ – local economies reduced to poverty which concludes "Economics 101 shows conclusively how critical savings are to development, but only if intermediated into growth- and productivity-enhancing projects. If it all goes into rickshaws, kiosks, 30 chicken farms, traders, and so on, then that country simply will not develop and sustainably reduce poverty." The post in 'India Development Blog' has also a response from Prfessor Bateman.
P.S. More discussion of bateman's remarks in The Problem With Microfinanceby Niranjan Rajadhyaksha and Lessons from Micro-finance II by Glulzar Natarajan.

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