IT'S ALL IN THE ROOTS, NOT THE SEEDS

How a Seed-Money Loan of $60 Turned Melanie Pico Into an Entrepreneur (ANDRES MARTINEZ, 7/08/03, NY Times)

Microfinancing is a grass-roots development tool that works best when run as a viable business, independent of government. While the emphasis once was solely on making loans, the latest trend is to offer clients a range of financial services. Governments are rightly being exhorted to regulate microfinancing institutions as a legitimate part of the financial sector. The Philippines has done so, and the Mindanao foundation's clients participate in a savings plan, too.

Remittances, the private flows of money sent home to developing nations by workers overseas, are fast becoming the cherished "El Dorado" for microfinancing promoters, as they are for plenty of other development schemes. It is estimated that last year the amount of money sent home by migrant workers--some $80 billion--overshadowed for the first time the amount of total aid and credit (both private and public) extended to poor countries. In the case of the Philippines, long known for exporting labor, remittances are one of the few things the nation's economy has going for it these days, amounting to some $7 billion a year.

Outfits like the Asian Development Bank and the Inter-American Development Bank see a natural fit between remittances and microfinancing. The challenge for them, and for policy makers from Manila to Bogota, is to find ways to deliver on this promise, both by enabling microfinancing groups to help speed the transfer of funds to remote villages at a lower cost and by providing a pool of working capital for microfinancing.

If microfinancing can indeed tap into these flows of capital in a significant way, overseas workers sending money home will have given their
communities a "hand up" in more ways than one.

It will come as no suprise to conservatives to hear that one of the main problems with such microfinancing schemes is cultural--in many societies the "borrowers" feel no sense of urgency nor any debt of honor to repay the loans, so they don't. Get the culture right and all else follows. Posted by Orrin Judd at July 9, 2003 8:22 AM