Saving Microfinance from the wolves and vultures

There has been much criticism lately of microfinance and this has led to proposals for tougher regulation of microfinance institutions in India and other developing economies in which microfinance is operated.Some such lenders are acting increasingly more like loan sharks than community-based loan facilities for small, but significant, entrepreneurial activities.

A report by the BBC here shows that Indian officials are very concerned with these new microfinance groups  and their profit-driven agenda. These government officials have proposed setting a cap on the interest rates that microfinace groups can charge, a proposal which has been gaining support in recent months.

One particular reason for this is that "for profit" micro-finance institutions have been linked with with several cases of people who are unable to repay their loans committing suicide.Surely something needs to be changed so as to expunge organizations that act in such a bullying manner from operating under the banner of "micro-finance".

The Economist has a great article stating that better regulation and not a cap on interest rates may be the answer : Microfinance: Leave Well Alone.  

It's a very convincing argument and, for the most part, I agree. However, I think that any legislation should also re-emphasize the main aim of microfinance, which is to enable a person or a group to develop a business or project improving their standard of living and their community's well being.




NB. - Just noticed that, quite recently, one of the most criticized microfinance groups, SKS in India, had lowered its interest rates by a small amount following pressure from the Indian government and media.I wonder if several of these institutions will lower rates so as to allay any concerns about their practices and head off any new legislation.

National Recovery Plan 2011-2014

For anyone with a few days to spare here's how we're getting out of all that pesky debt we owe...apparently.

PDF file at : http://www.budget.gov.ie/The%20National%20Recovery%20Plan%202011-2014.pdf

Irish Lessons for China ?

Clifford Coonan wrote an article in the Irish Times last Saturday discussing how the small, but growing, middle-class in China have pushed up the demand for luxury goods and are starting to turn their attention to property. Sound familiar ? The ramifications of an overheated Chinese economy and an ensuing burst property bubble would be disastrous for a world economy coming out of recession, even with a restrictive environment for foreign investment and a more regulated banking sector than, say, Ireland

However there are many reasons not to panic just yet. China's potential for growth is immense, some analysts have their annual growth rate at between six and nine percent for the next decade. Furthermore it is taking unprecedented measures to allow its currency to rise even if they are still far from what is required to have the yuan trading at a realistic value.

It's a good article and the comparisons with Ireland are quite poignant, showing how people in countries flush with easy credit and a booming economy can behave in such a similar manner.

Article available here

Interesting Future for the EFSF

Here's two articles from the Finacial Times Alphaville blog discussing the recent rumours that the EFSF will be used by the EU to fund Greece buying back its own sovereign debt bonds on the secondary markets.

Note that RBS rates strategist, Harvinder Sian, is quoted as saying that this may only save the Greeks €12.5bn in debt costs, reducing it from 158% of GDP to 153%.

Interesting stuff considering Ireland may be moving in to this territory soon...

Weirdo Greek debt restructuring

Reflections

Who Owns US Debt ?

Here's a cool a graphic displaying the share of US Treasury bonds held by different nations with China holding the most US debt.



Although China is now seen to be diversifying its foreign exchange reserves with the recent purchases of European "periphery"  bonds (i.e. Portugal and Spain) the country remains heavily invested in US debt. Premier Wen Jiabao had previously called on the US to ensure the safety of its bonds as future increases in the US bond yields, caused by rising deficits which will require more funding, would devalue Chinese holdings*.

However, despite a small drop at the end of 2010,  it would not be in China's interests to abruptly and dramatically move away from US debt. This would lead to further deflation of the dollar and a fall in American consumers' demand for Chinese goods.

What is most likely to happen in the near future is that China will continue to slowly let the yuan apprecate in a controlled manner  while also diversifying its sovereign debt holdings.





*Explanation of this here

US States' GDP Equivalents

Found this cool chart on the Economist's website showing which countries are the GDP equivalents of which US states, i.e. Maine's GDP is $51.29bn and its equivalent country is Luxembourg.

Some interesting ones are Nevada, Illinois and Idaho. Remeber these are not per capita so Oregon having the same GDP as Pakistan is rather impressive when you consider the differences in population.

Its an interesting exercise, more in terms of highlighting the differences facing the nations and their US GDP equivalents rather than what they have in common. For example, a California default would be problematic but manageable for the US Fed, however a default by Italy (perhaps only slightly less likely!!!) would probably lead to a meltdown in the Eurozone and a huge crisis in the sovereign debt markets. 

Careful Now

Hi I'm Neil and welcome to my blog. Over the next few weeks I hope to have a few small articles and links up concerning:

• the Irish political situation, 
• the Eurozone debt crisis (particularly Portugal), 
• the World Economic Forum at Davos
• President Sarkozy's valiant efforts to create world peace, reduce global trade imbalances and revive disco music.

Eh maybe some of that last point requires more research.....

Until then please enjoy this New York Times article by Stephen J. Dubner and Steven D. Levitt (of Freakanomics fame) from 2007. Just what I need to think about after the gastro-excess of Christmas.