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BRUSSELS 2007! Workshop 5: "Credit for the “Poor”: Microlending or Bank Loans?" - Feedback by Prof. Greg Squires
W5: CREDIT FOR THE “POOR”: MICRO-LENDING OR BANK LOANS? Gregory Squires and Leo Verhoeff

Thoughts and questions from Prof. Greg Squires:

It is important that "micro-lending" not be marginalized or ghettoized from conventional or mainstream banking services. Large, mainstream lenders and lending should not be let off the hook just because there are CDFI's, other small micro-lenders, or even a micro-lending shop within their organizations. Perhaps micro-lending should be viewed similarly to what states often are in the US - laboratories for democracy. That is micro-lending entities might experiment with various approaches to bringing underserved communities into nations' financial and credit systems with the objective of trying to find those programs and policies that might be institutionalized and enacted on a broader basis. In any case, there is need for more rigorous, independent evaluation of micro-lending. Lenders, their customers, regulators, and elected officials can all have a role in such evaluations, but these must be conducted by professionals who are independent of the le nding programs under review.


- What do we currently know about the success of micro-lending? Who benefits, who pays?

- How have micro-lending programs fared in bringing underserved markets within advanced industrial nations into the mainstream, and how have they fared in helping poor nations generally?

- Have there been any important positive (or negative) spillover effects into mainstream, conventional lending?

- Since micro-lending, particularly for business purposes, is more individualized than most consumer lending, does this make credit scoring less appropriate for such lending?

COMMENT BY Prof. Leo Verhoeff, Netherlands

I agree with the issues you mention. However, in the discussion on basics for success in micro lending I also would like to point out that the American situation shows that the best climate for micro lending is a comprehensive approach i.e. that the micro lending is part of a bigger project such as social and physical renovation of neighbourhoods. This will be the new approach in the Netherlands: a total renovation of urban areas with a majority of immigrants in the inner cities. (Unemployed) people living in these areas will be included in the renovation activities in such a way that they can start their owen business with it. In the USA this approach in practise for more than 25 years now, although mostly done by private initiatives while in the Netherlands it is part of public actions.

ID: 40132
Author(s): iff
Publication date: 13/09/07

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