| Responsible Microfinance: its long-term social, economic and political effects - Comparing China and India . Some ideas on Tsai, K. S. Imperfect Substitutes: The Local Political Economy of Informal Finance and Microfinance in Rural China and India, World Development Vol. 32, No. 9, pp. 1487–1507, 2004 |
The increase of poverty is the biggest challenge for neo-liberal politics. The gap between rising productivity and declining equality inside capitalist societies threatens social cohesion and creates political turmoil. Indebtedness which historically was seen as the most visible threat of money society to individuals as a means to escape poverty is surprising. It creates the temptation to justify a market-only approach instead of strengthening the "moral dimensions" to make markets responsible and responsive to human needs. Microlending although empirically of yet little significance for the welfare of the world's poor is at least ideologically at the centre of social policy - not where poverty is created but where it could be defeated. This weakness of this approach should be taken into consideration.
MICROFINANCE – THE GRANMEEN MODEL
The Granmeen Model of Microfinance is praised and replicated all over the world. Nobel Prize, 2006 year of Microfinance from the UN, Clinton’s Microfinance Summit, major donations by the worlds leading banks, an extensive EU-Programme from DG Social Policy financing the European Microfinance Network, government support in Germany, the Netherlands and France vast activities of the World Bank in Asia and Latin America make Microfinance the preferential option for combating poverty in the world.
People who have followed development politics of the same actors over the past 50 years have to be sceptical. Has Saulus turned into Paulus or is there a continuity in helping the third and fourth world into a system which merely opens it to the developed markets, adapts them to policies which are defined elsewhere and educates the poor to accept market mechanisms at least as the dominant means to escape poverty although evidence in Africa, Latin America and Asia is not so convincing?
The problem of Microfinance and the Granmeen model lies in the difficulty to discuss it rationally and scientifically. It has got some religious traces and many who praise or condemm it seem to have little knowledge about credit, banking and debt. His leader is more praised as a spiritual leader than as a skilled bank manager. An international community has developed which treat him as a Saint like Dalai Lama or Mother Theresa instead of taking into account that he is a US trained economist who applies liberal theories to third world countries with broad support of the World Bank and a personal charisma.
CRITIQUE OF MICROFINANCE
The ambiguity of Microlending has recently led Heloise Weber, (The ‘new economy’ and social risk: banking on the poor? Review of International Political Economy 11:2 May 2004: 356-386, 380) to the final conclusion of her essay that “making the ‘poor’ ‘bankable’ is thus an integral part of the problem, rather than the purported innovative road to the solution.”
Others have denounced the predominant political instead of social and economic impact of microlending campains. (Jurik, N./ Cowgill, J./Cavender, G. Chasing Dollars: Legislation, Ideology, and Social Service Program Identity – Paper presented to the annual Law & Society meetings, Budapest, Hungary, 2001 (Arizona State University) 2001 (unpublished); Rogaly, B., “Micro-finance evangelism, destitute women, and hard selling of a new anti-poverty formula.“ Development in Practice 1996, 6:100-112; Bates, T./Servon, L. “Why Loans Won’t Save the Poor.“ Inc. Magazine, April 27, 1996; Ehlers, T. / Main, K. “Women and the false promise of micro-enterprise.“ Gender and Society 12:424-440, 1999; Howells, L.A. “The dimensions of micro-enterprise. A critical look at micro-enterprise as a tool to alleviate poverty.“ Journal of Affordable Housing and Community Development 0: 161-182; Jurik, N.C./Cowgill, J. “Women and Micro-enterprise: Empowerment or Hegemony?“ in: Institute for Women’s Policy Research (Ed) Women’s Progress in the Past, Blueprint for the Future, Washington D.C. 1998; Quandagno, J. “Creating a capital investment welfare state: The new American exceptionalism.“ American Sociological Review 64:1-11 (1999))
But sharing the critique of the ideological misuse of microfinance concepts for defensive banking policies or (as it could be read as a subtitle to the photo of Mohammad Yunus in the actual business report of the biggest German bank) as a tool to enter Asian retail markets does not judge the lending practice itself.
Because Christian charity in the third world cannot be blamed for its misuse under colonialism microlending as such cannot be blamed for its misue for defending markets. (see Micro Lending in Industrialised Economies – iff-Discussion Paper
)
In order to escape a religious fight between persons of opposing faith Microlending should carefully be monitored in its reality and longterm impact instead of its aspirations. “Good intentions often pave the way to hell” is a German proverb. (Der Weg zur Hölle ist mit guten Vorsätzen gepflastert.) The article on Microfinance in Asia cited above offers an opportunity to look at the two elements: the political idea of microfinance and its economic reality.
THE IDEA OF MICROFINANCE AND FINANCIAL EXCLUSION
The assumptions on Microfinance are at the same time intelligible, simple, convincing and empathetic. After thousands of years where banking, credit and money interest have been labelled as the main force to drive people into poverty (Aristote, Jesus, Mohammed) credit now appears as the main instrument to defeat poverty. Indeed poor people need capital. This is normally provided by the employer but in times of high unemployment sefl-employment at least theoretically becomes an option. In this case the worker has to provide his or her own capital. With more industrialised markets the amount of capital necessary to start rises even in services. Such capital has to be advanced without the chance of previous savings.
On the other hand banks have rationalised and developed their lending systems. To render small credit profitable they would either need usuriously high interest rates (see the credit card and payday loan markets in the Anglo-Saxon countries) or focus only on those that have sufficient security in an automated internet market. Both options do not apply to unemployed people or are hindered by interest rate caps.
This is what is called “financial exclusion”.
Microfinance offers credit to these people which together with accompanying coaching and subsidies enable the working entrepreneurs to start a business, earn their living, pay interest and repay the loan. In fact with enormous financial input which may according to a Chicago survey amount to twenty times the amount of credit extended to the borrower the repayment rates are kept very high and seem to prove that the system works and poor people can be turned into faithful investors.
Repaying a loan is seen as an educational programme for market behaviour which tells people that nothing is for free and that one is in charge of one’s own future. This is in line with the neo-classical attitude of some Micro-Finance leaders to third world debt. As they attribute overindebtedness to lax morals in credit, debt and spending they even ask for the full repayment of this debt without regard to the fact that much of these loans have never been invested by the poor themselves but stem from provisions, charges, interest and refinancing cost or even intentional corruption induced by lending policies that sought to make borrowers more dependant.
MICROFINANCE IS A SMALL LOAN – THE HISTORICAL LESSONS IN GERMANY
From an economic rational perspective Microfinance has at its centre a small commercial instalment loan for start-ups which is accompanied by a number of measures which have little to do with the credit itself but mostly with the productivity of the invested labour. In this the name “microfinance” is not very helpful. It does not say what is supposed to be “micro” – the business of the borrower or the size of the loan or the lender? It thus seems to unite the Small is Beautiful-Movement with the tradition of helping the small people (“kleine Leute”) by using only small and morally acceptable amounts of credit. As microfinance in reality is extended by large organisations like Granmeen bank and amounts to tenths thousands of dollars in the US while extended to social organisations in Asia none of these characteristics seem to be truly valid.
Why is it called “finance” if it is only a loan? Does it truly “finance” an enterprise or is it only a small component in the number of financial tools employed by the working entrepreneur? If it has achieved miracles in the third world was it the loan or should it be attributed to the accompanying measures? But what is the difference to a start-up small loan? If it is only the different environment why not call it “accompanied small instalment loans”?
1. Step: BAN ON MICROFINANCE FOR THE POOR
Small credit for poor people has a long history. We remember centuries where such loans were banned, totally regulated, lenders prosecuted, emprisoned or chased. Only at the end of the 19th century such very small loans left the shadow of usury and the curb as extensively described in Dostoevsky’s works. The American Singer Company were said to be the first Microlending institutions in Germany. They sold sewing machines to workers’ wives on hire purchase enabling them to sell cheap labour to the textile industry outside the shelter of labour law and the labour movement. In Prussia two royal commissions were formed at the request of the Prussian parliament and two German “Lawyers Days” were dedicated to the “Missstände im Abzahlungsgeschäft” (abnormities in instalment credit) All events and reports revealed the enormous impact such systems had for the further impoverishment of poor household and led to the 1894 German Law on Instalment Credit.
Still after the second world war such small bank loans were partly prohibited and partly highly regulated in Germany (price limit at 1% p.m.) and seen as the wrong way out of poverty. It was assumed that it kept people from saving and deterred money from the economy.
2. Step: MICROFINANCE AS A FORM OF COMMUNITY REINVESTMENT
But not all credit was seen as bad. It should only be used in the form of Community Reinvestment where in each community the amount of credit should not be more than the amount of savings. (the famous psychological law of Lord Keynes)
While very small credit was seen as counterproductive for economic development at the same time farmers were organized into Savings Coops by Raiffeisen and Schultze-Delitsch who then redistributed these savings on a local level at affordable rates to its members as a credit – a system which has partly survived until today in the German Genossenschaftsbanken. On the other hand the cities and villages created own “Savingsbanks” which again collected primarily the savings of the middle classes to redistribute this money to them as a supervised public credit – a model which was so successful that it accounts still today for more than 50% of the German small credit market.
Centralisation of capital was the miraculous formula of financial development in the first world and there was no idea that capital should be inserted into such communities which had no own savings records.
A second very important instrument were developed with the Bausparkassen, which are savings- and loan institutions, where the money of those who want to acquire homes is accumulated via subsidised savings and then reaching a certain percentage of 40% of the required prize distributed together with a cheap credit to the savers so that they can use collectively what they individually accumulated. Until today the loans are only extended if there are enough collective savings available.
These three savings systems were build on a number of informal savings systems like the savings boxes in pubs which persisted until the fifties of the 20th century and whose contents was emptied and delivered to the banks if they reached a critical mass.
There was also a public system of credit for those in need – the highly regulated and mostly publicly administered pawn shops. In these credit institutions valuables were temporarily turned into financial liquidity at low rates (no more than 1% p.m.) and the surplus of the security when sold was handed back to its former owner. These still existing systems in Germany and the Netherlands are mirror of extreme fairness and concern for poor people but of course require valuables.
3. Step: RESPONSIBLE CREDIT, USURY CEILINGS, PERSONAL BANKRUPTCY AND INTERDICTION OF KIN-RESPONSIBILITY ESPECIALLY FOR WOMEN
When small credit became common through the storm of consumer credit imposed on society by the automobile industry this credit became also available to business start-ups who still today use primarily consumer credit as their microfinance. But the ghost of overindebtedness and lifelong dependency was not tamed or abolished. It appeared again just as predicted by Aristote and the religious leaders.
Modern society reacted and gradually cultivated small credit linked to human life time and fate. It was assumed that small people are not more productive with the investing of their borrowed money that big business. Thus very high interest rates were banned in 1981 by the Supreme Court who ruled that more than the average would be void and give a right to a free credit, interesting enough based on a very simple article where “good morals” are seen as a limit to the liberty of contracts.
Shortly after it ruled that default interest rates had to be lower than the contractual interest rates to take any incentive away from the banks to turn loans into arrears by cancelling the credit. The cost of additional services had to be included into the APR so that the total amount would never cross 20% p.A. In addition refinancing activities of brokers were limited by the law who required that refinancing should not increase the cost of the credit. Finally around 1995 the German Bankruptcy code finally introduced the right to discharge which is now after six years where the seizable part of the income has to be paid to the creditors. 2000 free debt advisors help to enforce these rights and publicly financed credit advisors in consumer centrals help to monitor lending practices which in addition are allowed only supervised banks.
While Microfinance praises its enormous success with lending to women in the third world German consumer organisations finally got the constitutional court to void poor women’s co-liability in credit contracts where they were bound to repay their husband’s small business loans.
The idea of productive and responsible credit extension requires normally that those who invest the money should be the borrowers and nobody else. All additional guarantors and co-signers of the credit have been seen by German courts as having been forced into such obligations by exploiting their emotional dependency to the main debtor.
The idea that microfinance should only extended if the credit was so productive to repay for both, principal and interest, led to a number of safeguard which were all designed to prevent overindebtedness.
DOES MICROFINANCE NOT NEED SAFEGUARDS FOR RESPONSIBLE CREDIT – BEING RESPONSIBLE BY DENOMINATION?
If we look at the historical rules developed to make credit for small businesses and persons productive little of it is mirrored in the Microfinance area.
• Rate caps have been levied for Microlenders in France at their request claiming that low rates hindered access to small credit for poor people. The same is argued in the Thrid World where microfinance is used as pretext to liberalise markets. English mircolenders charge more than 30% p.a. and in the third world the difference between microfinance and curb markets are not always visible.
• Lending to women is one of the core principles of microfinance even in Islamic countries like Bangladesh or other male dominated countries like India where women are kept dependant and have little share in earning money. While the brilliant examples stem from liberated women businesses in Africa and South America there is suspicion that the ties women have with their former address through the children while overindebted men after inundations leave family and home as well as the psychological power women exercise in archaic family structures are used as debt collection tools.
• Microfinance in its step-by-step approach uses pre-savings periods. But this has only educational reasons and only for the first credit before a credit history is build up. In fact it does not use savings as a means to refinance credit and build up an own capital stock in the community. Most money stems even from abroad donated or lend by the World Bank, IMF, multinational banks or foundations. The pure existence of such Microlending schemes creates additional economic dependencies.
• Mostly none of the protective rules cited above apply. US Microlenders excluded consumer protection rules for such loans while the EU tried to exclude them totally from the application of the Consumer Credit Direcitve. French banks like Cofinoga together with microlenders claim that consumer protection rules do not guarantee responsible credit but hinder access to small credit at all.
• While small credit was highly supervised Microfinance is mostly allocated outside the systems of supervision and handed to laypersons whose often do not have to prove financial capability and professional skills.
Centuries of experience with small credit is worth nothing? The ban on small credit, the interdiction of interest, its gradual admittance with rate caps only if a community itself had produced the capital via savings which could be lend to the individual entrepreneur and its strict supervision? Is modern poverty in the Third World as well as the Fourth World in the Suburbs of industrialised countries so different that the lesson from our own development can easily be forgotten?
MICROFINANCE – A COMPARISON BETWEEN CHINA AND INDIA
Working Capital in the US before ceasing its activity admitted in the Juornal of Microfinance that Microfinance did not create a single self-employment. STREET has nearly vanished in the UK while Enigma in Germany admits that none of its goals have been reached. IN Columbia Microfinance institutions were closed down after corruption overtook. The countries who have the best Microlending systems seem to have the worst social developments. But still this is no prove that this way is wrong. Especially Eastern Europe is praised as a promising field for microfinance with a free financial market that allows its total application supported by DG Employment with its special programme on Microfinance within the social exclusion unit.
In this respect it is interesting to listen to an article that compares Microfinance in China with Microfinance in India (comparable to Bangladesh which even much poorer than India is praised as a world wide financial model for combating poverty while lately even elections seemed to have become impossible in this poorest country.)
This comparison is especially interesting as for the last decades it is widely assumed that China’s economy improved while the poverty level in India does not seem to have moved.
In addition India’s financial market is largely deregulated while China has harsh rules. In India there is no bankruptcy scheme or any safeguards against usurious lending practices. About 3000 farmers are said to have committed suicide in 2006 and the number of curb lenders rises constantly. On the other hand India is especially praised by its openness to Microlending schemes from abroad.
China instead has harsh usury rules and rate caps. It eradicated on several occasions private small lending and overtook all kind of credit activities. China invited German Bausparkassen like Schwäbisch Hall (China Construction Bank (CCB) and Sino German Bausparkasse) to build up a savings and loan system. In the countryside the cooperative form of centralising savings is the main form of capital accumulation and lending. In addition lending to individuals is restricted. Credit goes to corporate entities so that individuals could not be entangled by debt. China is also the country who showed most resistance against the efforts of the World Bank and the IMF to extend microlending schemes. Compared with India it is highly "conservative" and critical to credit in line with feudal resentments.
We cite from this comparative article which we strongly recomment to read although this article like most of the research starts from the questionable assumption that Microfinance is an effective tool to combat poverty and should be developed all over the world without looking at the whole of the economy in society. It thus falls short of recognising that the Chinese reluctance and the Bangladesh euphoria on micro-finance may not correspond with these aspirations.
But just describing what presently happens in these country allows different theses including the thesis that the Granmeen Model may hinder development in its present form and that regulated savings systems as they proved to be effective in 19th century Germany work better in China as well as in India. While the first World Bank approach is today blamed for having thrown third world states into overindebtedness and corruption the second world bank approach in its present form may also be erroneous. At least the article seems to say that not the foreign investment style Granmeen microfinance but those institutions like pawn shops and local cooperatives in India (SHG) and china (HUI) are the main factors for financial development and that constant state intervention and crack down on usurious private lenders who enter this world are the promising tools to develop responsible credit schemes - in short it support the idea that only "responsible credit" is productive also in Microfinance.
“THE LOCAL POLITICAL ECONOMY OF INFORMAL FINANCE AND MICROFINANCE IN RURAL CHINA AND INDIA WORLD DEVELOPMENT”
Tsai, K. S. Imperfect Substitutes: The Local Political Economy of Informal Finance and Microfinance in Rural China and India World Development Vol. 32, No. 9, pp. 1487–1507, 2004 2004 Elsevier Ltd. All rights reserved Printed in Great Britain 0305-750X/$ - see front matter doi:10.1016/j.worlddev.2004.06.001 www.elsevier.com/locate/worlddev
INDIA: MICROFINANCE, SUBSIDIES AND CORRUPTION
"(p. 1490) In addition to the loans (in India iff), IRDP borrowers also receive a cash subsidy at the time of loan disbursal equivalent to 25–50% of the project cost (Nagarajan & Meyer, 2000, p. 170). The program has certainly disbursed a high volume of loans, but funds have been misused via the subsidy component such that cash is diverted to local elites rather than the intended borrowers; as a result, the program has had a repayment rate of only 25–33% (Sinha, 2000, p. 66). Meanwhile, the RRBs and primary agricultural credit societies have not performed any better."
CHINA: SUBSIDIES AND NOT LOANS
"State-subsidized microfinance in China has had a shorter history than in India, mainly because China started poverty lending about one decade later than India. To be sure, both central and local governments in China have directed subsidized credit to particular sectors or industries, but that type of ‘‘policy lending’’ has not occurred in the name of microfinance or poverty alleviation. In 1986, a subsidized lending scheme for poverty relief was introduced, which targeted collective enterprises at the township and village level rather than individual households (Rozelle, Park, Ren, & Bezinger, 1998). While official interest rates on loans ranged between 8% and 10%, the poverty alleviation loans charged only 2.88% annual interest. As is the case with most subsidized credit schemes, the loans were distributed to politically important enterprises and higherincome households, and the repayment rates were about 50% (Park, 1999).
Providing subsidized loans directly to households did not start until a few years into China’s National 8–7 Poverty Alleviation Plan, introduced in 1993. As part of the strategy to raise 80 million people out of poverty in seven years (i.e., during 1994–2000), the central government identified 592 poor counties where US$775 million worth of subsidized microloans (Tsien, 2001), and by 2002 nearly US$3.7 billion (or half) of the central governments poverty-relief funds were going toward poverty- relief loans (Xinhua, March 2, 2002). As in the earlier model of poverty lending, however, repayment rates in these government programs have been low, i.e., less than 60%. Even though the Agricultural Bank of China (a state commercial bank) took over the poverty lending program from the Agricultural Development Bank (a policy bank) in 1998, the People’s Bank of China (PBC) has not been involved in monitoring the microcredit component of the Agricultural Bank of China’s operations, and the loans are treated more as social grants rather than as commercial loans. In other words, the microcredit component of PA lending has been treated as one-time fixes rather than exhibiting a commitment to sustainable models of microfinance (Cheng, 2003). Meanwhile, the PBC has been encouraging RCCs to extend microloans to rural households. As of 2002, the PBC reported that RCCs had extended a total of 78.9 billion RMB (US$9.54 billion) worth of microloans and that 25% of all rural households in the country had received such loans (CIIC, November 5, 2002).
Granmeen Replications: The largest ones are SHARE, Activists for Social Alternatives Trust, and Rural Development Organization, Manipur (Sinha, 2000, p. 70). vast."
INDIA: FUNCTIONING FINANCIAL COOPERATIVES AND GRANMEEN REPLICATORS
"In India, microfinance NGOs have generally taken one of the following three forms: selfhelp group (SHG) programs that have linkages with banks; cooperatives; or Grameen replicators (EDA Rural Systems, 1996). Organized by NGOs, SHGs consist of 10–12 people with similar socioeconomic and demographic characteristics (e.g., low-income women in rural areas). As of 2002, there were one million SHGs with 17 million members (Ashe, 2002, cited in Wilson, 2002, p. 221). The purpose of the SHGs is to help the members save small amounts of money on a regular basis, to create an internal insurance fund for members to draw on in times of emergencies, to empower the members through collective decision-making, and to extend uncollateralized loans to group members (Hannig & Katimbo-Mugwanya, 1999, p. 7).
Since 1992, the National Bank for Agriculture and Rural Development (NABARD) has experimented with creating linkages between SHGs and banks, such that banks lend through NGOs or directly to SHGs. As of March 2003, over 444 banks were participating in microfinance linkages with 717,360 SHGs; in total, the SHG–bank linkage program had served an estimated 7.8 million low-income households (NABARD, 2002, 2003). 9 Ultimately, NABARD hopes to reach one-third of India’s rural population through the establishment Furthermore, financial liberalization since the 1990–91 economic crisis has loosened interest rate controls on microcredit, which offers MFIs in India the space to structure their loans in a financially self-sustainable manner.
Whether this occurs, however, depends in large part on changing popular perceptions that low-income borrowers cannot afford commercially viable interest rates. In contrast to the relative ease with which NGOs may register themselves and act as MFIs in India, China’s policy environment is much more restrictive. All NGOs in China must have an official government unit sponsor their application to register as ‘‘social organizations’’ with the Civil Affairs Bureau (Saich, 2000). As such, China does not have purely nongovernmental organizations engaged in microfinance even though they may be functionally equivalent to NGOs. The introduction of the Grameen model of microfinance provides a good example of the close relationship between government entities and NGOs in China. The replication of the Grameen model in China first came about through the individual initiative of researchers at the Rural Development Institute of the Chinese Academy of Social Sciences (CASS) and international donors; but to date, the most successful Grameen replications are managed from an office housed at CASS."
CHINA: PAWNSHOPS AND COOPERATIVES (HUI)
(p. 1494) "A PBC-lead crackdown on illicit financial institutions closed over half of the registered pawnshops, leaving only 1,304 shops with PBC licenses. 20 In a further attempt to circumscribe the financial malfeasance of pawnshops, they were reclassified in 2000 from being financial institutions’’ under the PBC’s authority, to a special kind of industrial and commercial enterprise’’ regulated by the State Economic and Trade Commission (JJRB, 2000). In short, over the course of the reform era, pawnshops have been legally registered in some cases, registered with the incorrect local agency in others, and engaged in practices that are clearly illegal. While pawnshops are now technically subject to central-level regulations, rotating savings and credit associations (hui) remain unregulated in most localities. When hui involve relatively small groups of people (5–10 members on average) who pool set monthly contributions and rotate the disbursal of the collective pot of money to each member, local governments usually consider them a productive form of mutual assistance among ordinary people, typically women. But if a member runs off with the collective pot early in the life of an association, the members who have not had their turn in collecting money are cheated out of their contributions. In the coastal south, a handful of high-profile cases have accumulated where various types of hui were exposed as fraudulent schemes organized by con artists (Tsai, 2000).
The large-scale cases were not traditional ROSCAs, however, but rather, ponzi schemes that are never sustainable because they generate extremely high returns by exponentially expanding the network of investors. Hui collapses make headlines, but they are actually relatively rare. As such, it is only in a small handful of localities that hui have been banned by local governments. established in approximately one-third of all townships, and by 1998 there were over 18,000 RCFs with over five million depositors (Holz, 2001). Since RCFs were not permitted to mobilize deposits or extend loans like formal financial institutions, they used euphemistic terms for comparable transactions; instead of paying interest on deposits, for example, they sold ‘‘shares’’ (rugu) and extended ‘‘capital use fees’’ (zijin zhan feiyong). Like pawnshops and other forms of informal finance, RCFs had a variety of governance structures and were more central to rural finance in some provinces than others (Park, Brandt, & Giles, 2003). Their quasi-legal status proved to be short-lived, however. As part of broader national efforts to rectify the financial system, in March 1999, the State Council announced the closure of poorly performing RCFs, and the takeover of better performing RCFs by Rural Credit Cooperatives. These actions triggered farmers’ protests in at least six provinces, including Sichuan, Hubei, Hunan, Henan, Guangxi, and Chongqing (AP, March 22, 1999; AFP, March 23, 1999). Apart from RCFs, some de facto nongovernmental financial institutions have managed to operate above ground and serve private businesses by registering as social organizations, which are administered by the Ministry of Civil Affairs. These go by a variety of names, including mutual assistance societies and cooperative savings foundations. The credit societies are supposed to be nonprofit organizations that serve impoverished populations. In practice, however, they operate like RCFs or private money houses in the sense that they mobilize savings, extend credit to private entrepreneurs who may be well off, and use interest rates that are higher than that set by the PBC."
RESUMEE
After all we may conclude that for the development of the Third World as well as our own poverty we should look more carefully into those historical situations which sucessfully developped rural economies in the 19th century instead of developing credit into an idealised separate tool whose political correctness corresponds in many regards with the deficits in our present system.
Small loan systems are necessary but to escape poverty we should insist that only "Responsible Microfinance" which has learned the lessons of taming credit for the poor can fulfil these goals..
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PS: 2008 is expected to be a critical year for China’s rural financial system, through relaxation of restrictions on village banks, village mutual funds, and microcredit companies, and reform of existing institutions |
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Created: 14/11/07. Last changed: 09/03/11.
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