Thursday, March 5, 2009

Universal Micro-Credit?

"...both my husband and I were determined that the concept of microcredit would have universal relevance. We looked for ways to apply microcredit in America, taking the best of the principles and values that it represented, but making it sure that it could be put into practice in different settings."--Hillary Clinton (February 3, 1997)

Microcredit has gotten a lot of attention in recent years from politicians as well as celebrities like Oprah Winfrey and micro-lender Muhammad Yunus even won a Nobel Peace Prize. For those who are unfamiliar with the term, I will review briefly; An NGO such as Grameen Bank recieves funds from philanthropists, the UN, and the countries in which it operates. It then distributes these funds to individuals under the care of "solidarity groups." These groups see to it that the funds are repaid with interest. As the name suggests, the members of the group are cojointly liable for the repayment of funds. If a microcredit recipient does not repay the other members of the group have to cough it up. So there each member has a vested interest in seeing to it that a borrower repays whether or not that borrower is able to turn a profit from his/her enterprise. It is unclear whether the methods of ensuring repayment are monitored by the NGO, but suffice to say that high repayment rates show that whatever methods employed are highly effective. There have even been reports of borrowers having to turn to loan sharks in order to meet their solidarity requirements.

So one might ask: Why shouldn't we use such an effective lending system to solve our luquidity crisis? Well good news-- the new administration is all about microcredit! Take Treasury secretary Geithner. His father ran The Ford Foundation's microcredit program in Indonesia (One of his employees was one Ann Dunham Soetoro). Ray LaHood introduced microcredit legislation is Illinois. Hillary Clinton helped bring Yunus and microcredit to Arkansas.

So what does this suggest about how our credit liquidity problem is to be solved? Maybe we'd better get used to the idea of solidarity.

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