Introduction to Microfinance (Portfolios of the Poor)
An introduction to microfinance based on Portfolios of the Poor. The poor live on irregular income flows and needs--microfinance helps to manage the unpredictability.
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The basic dilemma of microcredit is that it usually extracts even more money from the borrower due to higher interest rates in compensation for inexistent securities of the borrower. The principle higher risks = higher profits seems to be valid for the whole financial sector. Hernando de Soto mentions several legal and access barriers for poor people of the formal market mechanism which microcredits as just one part of the puzzle apparently can´t solve. The Grameen Bank (http://goo.gl/C2Bnp) seems to be a good case to study the issue. Its quite impressive it has 22,149 employees and a revenue of 176.67 million USD.
I also want to confirm your assumption that poor people in developing counties usually pay to save money as one mecanism which faciltates that poor people get poorer and rich people richer. In Germany for example you can get an account (or even several) whitout maintainence or transaction costs, even with a credit card for free, overdraft and without an minimum deposit at relatively good interest rates. In Central America the stakes to open an bank account are usually higher and it takes longer. You usually will have to deposit at least 50 $ when opening the bank account, you get a fee of at least 1 $ monthly if your deposit drops below 25 or 50 $, you have a limitation of six monthly withdrawals plus you get a low interest rate for your saved money and high fees for any service. A bank offering these conditions in "developed nations" would bankrupt immediately I guess. Do you have an explanation for these different conditionalities for different countries of almost all banks?
Microcredits are a good example on how politically correct ideas sometimes crash with economic realities. Muhammad Yunus turned into a rock star of economy selling the idea that micro credit as a "first push, was the solution to poverty, sadly this is not real and many government funded programs had turned into failure and bad use of resources. The basis of a "good" credit is that money must be invested to recover the capital and obtain some earning, when the amount of credit is microscopic hardly the money can be recovered, and the most common situation is that the debtor use the money for survival consumption. Microcredits may help in very specific cases but the application as a general policy (UN declared 2005 as "the year of microcredit") usually led to useless waste of money or a very inefficient use of government funds