March 2010


On Monday I posted on the Kiva Fellows blog about how Microfinance might make borrowers more fair. A New York Times Op-Ed by David Brooks indicates it may also make them happier. Brooks provides a quick overview of the current state of research on happiness. As one would expect, rising from poor to middle class has a significant positive effect on happiness (although going up from there does not).

Less obvious is the link between socializing and happiness. Brooks notes that joining a group that meets just once a month can increase happiness as much as doubling income. Microfinance is a heavily social lending model. Many MFIs use solidarity groups (that meet once or more a month) to encourage repayment, provide emotional support and facilitate information exchange. Other MFIs conduct educational classes or spiritual meetings. All in all, there are a number of ways in which MFIs encourage social interaction as well supporting income growth. The social component may well be as important as the financial one when it comes to making borrowers happier.

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A terribly practical argument against organized religion? Stampedes.

The Economist points out this week that many big donors are starting to focus on the savings side of the microfinance equation. I think they overlooked the challenge of regulating and insuring microsavings. It is easy to use a light touch when regulating microlending. As long as terms are clear for borrowers and basic consumer protections are in place, the market will guide interest rates and competition will encourage efficiency. If a microlender goes out of business, there will be fewer loans, but nobody loses any money.

The same cannot be said for microsaving institutions. Except for a few of the largest, MFIs tend to concentrate on certain geographic, demographic and industrial populations. This leaves them highly vulnerable to economic shocks. If MFIs want to use microsavings as part of their lending capital base, they will have to find a way to insure those deposits in the event of a run on the bank or an economic shock that significantly hit repayment rates.With such concentrated saving and borrowing bases, I would think premiums would be particularly high.

Establishing an effective regulatory and deposit insurance framework in countries that have struggled to establish even a basic credit rating system to protect microborrowers from predatory lending and over-indebtedness seems a lot to ask. Whether or not MFIs can profitably take savings and pay insurance premiums, I don’t know, but it seems like one of the biggest hurdles to widespread and effective microsaving.

BBC News reports that the UK is spending up to £2 billion a year common ailments that don’t require a doctor’s visit. Why anyone would voluntarily inflict the process of a doctors visit on themselves for anything short of heart failure is beyond me. During my trip to the doctor here in Azerbaijan, the nurse drawing blood used a needle the size of a drain pipe to dig around my arm like she was mining for gold. As a result, my left arm remains one giant bruise a week later.

Regardless, it is a concrete example of the perils of delivering healthcare with no market to signal price and use levels. Of course, that knife cuts both ways. If people bear too much cost, they might forgo cost saving preventative care.

A new post for the Kiva Fellows Blog on borrowers who are not using their loans to start or grow a business.

In an effort to create the ultimate sleeper, this Azerbaijani driver has equipped his high performance German sports sedan with a stellar Lada body kit.

Somewhere in there is a 4-litre V8.

A good summary of why microfinance interest rates are high and how they can be lowered (Asian Development Bank) and my take on why interest rates are crucial in microfinance (Kiva Fellows Blog)