tag:blogger.com,1999:blog-19649274.post115479724566717274..comments2024-03-29T12:03:50.891+05:30Comments on The Leap Blog: Farmer suicide continuedAjay Shahhttp://www.blogger.com/profile/03835842741008200034noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-19649274.post-1155268126957501152006-08-11T09:18:00.000+05:302006-08-11T09:18:00.000+05:30As you say at the end, there are genuine problems ...As you say at the end, there are genuine problems of information and incentives in a credit transaction. To the extent that micro credit introduces new innovations which overcome these problems, that can help. To the extent that NGOs are subsidised by donations, or to the extent that NGOs are running ponzi schemes which are not actually viable, micro credit is not a genuine answer to the problem but more a way for some individuals working in NGOs to feel nice about themselves.<BR/><BR/>And then there is the question of scale. Can micro credit initiatives become big enough to matter? My sense is that the problems of incentives and management inherently limit the ability of an NGO to scale up to a nontrivial-sized organisation. ICICI Bank is trying some very interesting things in trying to marry the strengths of formal finance and the strengths of micro credit. The jury is still out on whether this works well on a scale that matters for India. You might find <A HREF="http://www.epw.org.in/showArticles.php?root=2005&leaf=08&filename=8980&filetype=html" REL="nofollow"><I> Microfinance in India: Odysseus or Interloper?title</I></A> by Pradeep Shrivastava to be of interest.<BR/><BR/>My view is that micro credit is a nice side story. It is nice, but it is only a side story. My view is that the big places where credit constraints will be eased are using good collateral (loans against securities), and when there is no collateral, through credit cards. There are mistakes in banking regulation through which banks have a bias in favour of low quality collateral like real estate or cars and a bias against securities which are the best collateral, but in the long run, those should get sorted out.<BR/><BR/>My post on <A HREF="http://ajayshahblog.blogspot.com/2006/08/easing-credit-constraints.html" REL="nofollow">credit constraints</A> might also interest you.Ajay Shahhttps://www.blogger.com/profile/03835842741008200034noreply@blogger.com