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“It never got weird enough for me.”
– Hunter S. Thompson
Development and finance are increasingly intertwined, and both fields have over time produced their share of strange but successful, but also many odd and failed ideas. Here are a few recent bits of news from the weird world of finance and development.
# Since February, East African villagers can buy themselves carbon-efficient stoves to replace their tradtional fireplaces, financed via microcredit. This contribution to reducing global warming then pays off for them via carbon-offsetting credits which they can claim via mobile phone SMS.
The father of this brainchild, Carbon Manna Unlimited, estimates that in this way, an African family can save around 3 tonnes of CO2 per year, earning them between 20 and 30 US Dollars worth of carbon credits on European markets…
Carbon efficiency, mobile banking and emissions trading applied to African cooking – it sounds adventurous, to say the least. But I was also wondering whether, sociologically speaking, is this an immense act of pragmatic creativity or rather simply one mimetic behaviour? After all, emissions trading, mobile technology and carbon footprint reduction are recieved wisdom at the moment in the north.
On another sociological note, the project’s name, Carbon Manna (TM) Xchange, has a both distinctly religious and capitalistic ring to it – what would Weber say? Read the rest of this entry »
I hate to say “I said so”, and I know it’s horrible style. But sorry, this issue is too important to be ignored. My fears about the credit crunch and microfinance are being confirmed.
The current economic crisis threatens to set back development and poverty reduction by years. Who coul really be surprised? In a globalised world, when Wall Street sneezes, everyone else catches the Flu. Read the rest of this entry »
Since the beginning, proponents of microcredit have argued that they have found a self-sustaining, profitable route to reducing poverty: borrowers repay loans with enough interest to cover the costs plus an increase in the bank’s capital base, plus a payout for its owners. Sceptics of this story point to the fact that most microcredit programmes are still subsidised by donors. They argue that this is because many borrowers cannot afford to repay so dearly, and that the cost of capital should be lower in order to help more and poorer people.
Welcome to the ‘sustainability versus outreach’ debate. At the core, it is about the question whether incentives or impact matter more. Time to examine the arguments. Read the rest of this entry »
Credit is a useful lever for helping businesses grow. Many poor people in the developing world are self-employed farmers or petty traders, so technically they can be conceived of as businesspeople. But most farmers are actually subsistence farmers, working not for the market but for their own family’s meals, and many traders are simply traders for lack of a better alternative of stable, paid employment. They resiliently eke a meagre living out of their harsh surroundings, and truly deserve admiration by comfortable Westerners. But does that necessarily warrant them being treated as Schumpeterian entrepreneurs, willing and able to “creatively destroy” their traditional economic environments, if only they were lent the necessary finance?
We should keep in mind that people are incredibly diverse, and this must be taken into account and respected when formulating development policies. One-size-fits-all approaches have repeatedly failed in development history, and serve as a warning. Read the rest of this entry »
In the popular literature surrounding microcredit (or microfinance), a number of claims is repeatedly made which deserve a closer look. The mass media are full of heartwarming stories, anecdotes and PR-like representations of MFIs’ work, showing the apparent power of microcredit to improve the lives of the poorer inhabitants of this planet. In fact, many academic productions make similar claims without providing sufficient evidence to back them up.
In this way, the impression is being created that the development industry has found a panacea for poverty; a dangerous insinuation which can only lead to disappointment. Over my next few blog entries I will address and critically illuminate some myths – insufficiently supported claims or untested assumptions – which currently stand in the way of a balanced assessment of the true powers and drawbacks of microcredit as a development tool.
(phil)
Could the economic crisis harm microfinance? It seems possible that high expectations paired with a collapse in funding (archetypical elements of bubbles when bursting) may erode confidence in this development tool, which – for right or wrong reasons – is currently a dominant element of international development governance.
Recently, I got my hands on a publication by Deutsche Bank Research from December 2007, predicting a fantastic acceleration of growth in the microfinance industry over the coming decade. That they would publish such a view is unsurprising, given that DB is the issuer of several microfinance investment funds; in fact, according to this paper, for every Dollar currently invested in microfinance there are a full ten Dollars of untapped demand. DB expect this situation to be remedied until 2015 by a ten-fold increase in investments from the private private-sector, bringing the total volume of investments in microfinance to 20 billion Dollars (about six times the equity value of Commerzbank). Private-sector investments already more than trebled between 2004 and 2006.
Does this kind of prognosis sound familiar, in any way? Certainly, predictions of ever faster growth in a niche market in which most firms have not yet earned a single Dollar, based on wild assumptions about unmet demand, were all too common practice during the dot.com bubble of the late 90s.
Would it be too pessimistic (or just too early) to coin the phrase “microfinance bubble”? Well, maybe it just got coined here, and possibly for good reasons. Read the rest of this entry »
governancexborders.com 