So my understanding on the idea of microfinance is that by providing low/limited income households with relatively small loans, people have a chance to escape the cycle of poverty by creating/investing in local businesses. Now, so far it's a great idea. But I've read that the Grameen Bank applies a model in which the bank will only loan to people in groups... so why is that? And I've also read that the Grameen Bank charges a significantly high interest rate (about 20%), and that the Grameen Bank's model didn't work as well when applied in Latin and South America. It seems obvious that the Grameen Bank model is designed to be profit someway from microfinance because of the rules they apply. But wouldn't microfinance be more effective if the government instituted it?
.
Ashmoria
05-12-2008, 00:46
"But wouldn't microfinance be more effective if the government instituted it?"
in places where microfinance is used, the government is uninterested in micro loans and generally too bureaucratic or corrupt to make it work.
Neu Leonstein
06-12-2008, 00:26
Government allocation of capital is usually not a good idea, because it will allocate it according to political goals.
They do it in groups because peer pressure keeps projects in line and repayments on time.
The Grameen Bank doesn't work for profit. Other microlenders do, much to the chagrin of its founder.
Have a read:
http://www.spiegel.de/international/business/0,1518,513221,00.html
http://www.spiegel.de/international/world/0,1518,572389,00.html
Ashmoria
06-12-2008, 02:09
there was an article on slate a while back that discussed the microlenders that you could give money to that would do the best job with your money. some of them let you keep tabs on the person your money went to to see if they succeed or not.