Microfinance as described by Kiva:
"Microfinance is a general term to describe financial services to low-income individuals or to those who do not have access to typical banking services."
"Microfinance is also the idea that low-income individuals are capable of lifting themselves out of poverty if given access to financial services."
Uplifting, isn't it? I mentioned before that I'm an avid believer and participant in what Kiva does, but has the fuzzy term of 'microfinance' taken on a new tone?
Wikipedia calls microfinance a 'movement', and that those that back microfinance believe that this is a way to get the poor out of poverty. Perhaps this is where the movement started. Where has it gone?
Recently, the microcredit industry in India (which is a multi-billion dollar industry) almost defaulted. According to a BBC News Article, in the southern state of Andhra Pradesh in India there were strings of suicides in rural villages blamed on microfinance firms. There were allegations of severe malpractice such as force, heavy handed debt recovery and interest rates coupled with amounts that people could not reasonably pay back.
Does this sound familiar? In 2008, there were a series of suicides thanks to the fall of the subprime mortgage market. Handing out debt to people that can't pay it back? Heck, that's the most lucrative idea I've heard since 2008 - must history repeat?
What I find particularly troubling about this, is that we already have agencies that loan funds at out-of-this-world interest rates assuring uneducated people that they can afford it. The thought of having more is compelling to all of us, so those who 'need' financing will take it - and certainly those who can provide it with a huge spread will take it.
Microcredit seemed to me, when I first heard about it, to be putting the humanity back into the financial markets. Despite the fact that there does need to be interest rate spreads and profit made, there was significant evidence of force and trickery when it came to these loans in India. When it comes to the 'movement' of microcredit, I hope it's a boomerang.
