Micro no more

Micro no more - Micro no more Nov 3rd 2005 From The...

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Micro no more Nov 3rd 2005 From The Economist print edition Financial services for the poor and the rich are becoming increasingly alike Hewlett-Packard's Ugandan bank-in-a-box THE group of 30 women in the dusty square of a poor village outside Hyderabad, their children on their laps, passing tiny deposits and loan payments to a young man in their midst, seem to be engaging in a form of finance quite unlike that practised in the City of London or Wall Street. But is it really that different? Microfinance offers all the transactions you would expect in any branch of finance: loans, deposits, money transfers, insurance. It is distinct only because it involves amounts of money so small that in the past conventional firms did not think them worthwhile. That is clearly changing. Many microfinance institutions report better returns on equity than do large banks. Five years ago, providing financial services to people with little money might have been dismissed as a tiny niche business or charity. Now all the participants in the capital markets, from big banks to investors to rating agencies, are beginning to open up to it. The evolution of microfinance into a serious and viable business has many benefits. It means that in future the bulk of the capital is likely to go to the most efficient institutions with the best growth prospects. They will select their clients on the basis of merit rather than cronyism or bribery, of which state banks (as well as some private banks) in poor countries have often been guilty in the past.
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Sound institutions will be able to protect their deposits and attract new ones. In the most optimistic scenario, an open, viable financial sector will create a large body of people with economic stakes in their society who will demand decent public services, which in
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Micro no more - Micro no more Nov 3rd 2005 From The...

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