05 September 2009

Slum Bubble ~ MicroFinance Credit Crisis?

The WSJournal's Ketaki Gokhale reports A Global Surge in Tiny Loans Spurs Credit Bubble in a Slum...
"Microlending fights poverty by helping poor people finance small businesses -- snack stalls, fruit trees, milk-producing buffaloes -- in slums and other places where it's tough to get a normal loan. But what began as a social experiment to aid the world's poorest has also shown it can turn a profit. That has attracted private-equity funds and other foreign investors, who've poured billions of dollars over the past few years into microfinance world-wide. The result: Today in India, some poor neighborhoods are being "carpet-bombed" with loans [...] "We fear a bubble," says Jacques Grivel of the Luxembourg-based Finethic, a $100 million investment fund that focuses on Latin America, Eastern Europe and Asia, though it has no exposure to India. "Too much money is chasing too few good candidates."
A particular, telling example is that of Ms Zahreen Taj in Ramanagaram, southern India...
"Suddenly, in the shantytown where she lives, lots of people wanted to loan her money. She borrowed $125 to invest in her husband's vegetable cart. Then she borrowed more. "I took from one bank to pay the previous one. And I did it again," says Ms. Taj, 46 years old. In four years, she took a total of four loans from two microlenders in progressively larger amounts -- two for $209, another for $293, and then $356. At the height of her borrowing binge, she says, she bought a television set. The arrival of microfinance "increased our desires for things we didn't have," Ms. Taj says. "We all have dreams."
See Gokhale's video report... Addendum: I urge you to read SKS Microfinance founder Vikram Akula's scathing rebuttal letter.

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