Don’t miss this Connie Bruck/New Yorker article on Muhammad Yunus, the Bangladesh banker and economist who was awarded this year’s Nobel Peace Prize for his development of microcredit, which is simply the extension of small loans to entrepreneurs too poor to qualify for traditional bank loans (a recent WSJ ($) op-ed by Yunus is here). Interestingly, an unexpected force is competing with microcredit:
[Microcredit promoters] say that the biggest obstacle to commercialization of the sector is philanthropic capital. They say that it distorts the marketónot only by filling channels that might otherwise draw commercial investors but also by keeping unsustainable programs alive.
On the other hand, philanthropy is also a key source of capital for microcredit:
The idea of reaching billions of the poor by achieving ìscaleîóa word invoked ceaselessly in the microfinance communityóhas enticed foundations, rich individuals, even investors into channelling millions into microfinance. The $1.2-billion Michael and Susan Dell Foundationóestablished by the founder of one of the worldís largest computer manufacturersóhas begun making grants to microfinance institutions in India, a country of 1.1 billion people, most of whom have no access to financial services. In October, 2005, Google established a philanthropic entity called Google.org, with seed money of about a billion dollars, to fight disease, global warming, and poverty; microfinance is expected to be a key component of its poverty portfolio. And last April the Bill and Melinda Gates Foundation announced that it would devote an undisclosed amount of money to expanding financial services for the poor in developing countries. Dr. Rajiv Shah, who oversees the new Gates program, said of microfinance, ìThis can reach hundreds of millions of people, and do so in a way that helps them move out of poverty and that sustains over time.î
Hat tip to Tyler Cowen for the link to the New Yorker article.
