Friday, November 19, 2010

Felix Salmon on micro finance lessons from Andhra Pradesh

Felix Salmon has thoughtful post on microfinance The lessons of Andhra Pradesh with lots of links. One of them is David Roodman's Microcredit Portfolios Are Sand Castles. Felix Salmon's conclusion:

"SKS won’t ever be able to collect on the loans where its borrowers have gone on strike, and there’s no point in even trying; neither can it sell those loans to anybody else. Roodman says that “microcredit portfolios are like sand castles” — if you try to pick them up and move them to another institution, they disintegrate, since they’re based on a personal relationship between lender and borrower.

SKS’s loan portfolio in Andhra Pradesh has effectively evaporated, and no for-profit microlender is immune from the same thing happening to them. This is a global issue, which should be addressed by scaling back, going local, giving borrowers ownership of their lenders, and generally being much less ambitious when it comes to growth rates. Much better that full-service banks grow organically out of local communities than monoline microlenders parachute in, flush with venture-capital funds, make a huge splash, and then implode."

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