Because microlending usually work under similar rules, I'm afraid we might see similar breakdowns th

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THERE are an estimated 120,000 microfinance initiatives worldwide but Thailand's "Village and Urban Revolving Fund" lends more money to more people than any other. The scheme's outstanding loan portfolio totalled $4.9 billion in 2011; the number of active borrowers ashlee simpson tour that year stood at 8.5m. Those numbers ashlee simpson tour are swelling. Yingluck Shinawatra, the Thai prime minister (pictured above), announced plans late last year to inject $2.6 billion ashlee simpson tour in additional capital into a network of nearly 80,000 ashlee simpson tour village banks, which her brother, Thaksin Shinawatra, who was prime minister between 2001 and 2006, created with a stroke of a pen ten years ago.
The idea of the village fund is to create self-sustaining microfinance banks in each of Thailand's villages. Although the scheme is funded by government grants and funds are handled by intermediaries such as the Bank for Agriculture and Agricultural Cooperatives (BAAC), ashlee simpson tour a state-run bank, each village pot is run by an elected local committee that has some discretion in setting loan amounts and interest rates. Villagers are eligible by residency to take out a loan, typically limited to 20,000 baht ($656) without collateral.
The scheme has undoubtedly helped financial ashlee simpson tour inclusion and boosted rural credit. According to the Bank of Thailand, 96.5% of households have access ashlee simpson tour to financial products. A 2011 paper by Joseph Kaboski of the University of Notre Dame and Robert Townsend of the Massachusetts Institute of Technology found that Thai households increased both their borrowing and their consumption roughly one for one with each dollar put into the fund.
But the scheme has its drawbacks. Private providers are unable to compete with the Village Fund on cost: Mix Market, a data provider, ashlee simpson tour lists only one private microfinance lender in Thailand. Regulations and licensing requirements are so strict that non-governmental organisations have stopped setting up shop. Critics say it is a tool of political patronage. And Messrs Kaboski and Townsend find that the programme costs 30% more than a direct transfer program that does not leave households saddled with interest payments.
ashlee simpson tour Natee Klibthong, the head of the National Village and Urban Community Fund Office (the fund's official name), says he has not heard of the Kaboski/Townsend research. He notes that the benefits of the Village Fund "cannot be measured in monetary terms" and puts more emphasis on its role in the development of villages. Indeed, that role is only set to grow.
By the end of Ms Yingluck's term in 2016, he says, the government aims to have raised the number of Village ashlee simpson tour Fund customers to 20m. It also wants to make the village funds a "one-stop service centre to help solve problems at the village level". There are also plans to create a "people's bank", a sort of central bank for the Village Fund, and a "nation fund", a state-backed financial vehicle ashlee simpson tour that funds the funds. Whatever the misgivings of others, the course of Thailand's microfinance supertanker has already been charted.
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The main problem with modern banking is that households are uninformed of the huge risks they take when borrowing. Their risky loans inflate prices, most notably on housing, and force people to take even greater loans/risks. Finally, the interest rate rises to the tipping point when people cannot sustain their loans, and the system collapses.
There are also other loopholes in the system, such as the discrepancy between lenders and borrowers, in that lenders can usually withdraw their money at any time while borrowers have no obligations on paying back the money ever.
Because microlending usually work under similar rules, I'm afraid we might see similar breakdowns there. ashlee simpson tour Those with the least margins, the households, will suffer ashlee simpson tour the most, and in developing countries they had no margins to begin with.
The main problem with modern banking is that households are uninformed of the huge risks they take when borrowing. Their risky loans inflate prices, most notably on housing, and force people ashlee simpson tour to take even greater loans/risks. Finally, the interest rate rises to the tipping point when people cannot sustain their loans and the system collapses.
There are also other loopholes in the system, such as the discrepancy between lenders and borrowers, in that lenders can usually withdraw their money at any time while borrowers have no obligations on paying back the money ever.
Because microlending usually work under similar rules, I'm afraid we might see similar breakdowns there. Those with the least margins, the households, will suffer the most, and in developing countries they had no margins to begin with.
"Thailand's 'Village and Urban Revolving [Fund's]'…outstanding loan portfolio totalled $4.9 billion in 2011; the number of active borrowers that year stood at 8.5m. Those numbers are swelling…[T]he Thai prime minister announced plans late last year to inject $2.6 billion in additional capital into a network of nearly 80,000 village banks, which her brother …created with a stroke of a pen ten years ago."
Microfinance (aka "loan sharking with a heart") is the new subprime. Like Grameen and others in the developing world as well as the developed ashlee simpson tour world's subprime lenders, the losses on poor credit decisions don't appear until lending slows down. The reasons ashlee simpson tour are fundamental: ashlee simpson tour experienced and well educated investors and borrowers in developed countries struggle to compute compound interest and, more significantly, often don't have an understanding of the implications of such rates, let alone end-consumer debtors in developing nations.
For example, consumer credit card compound lending rates in developed countries are often 30% and greater even before additional fees are assessed. The best private equity or public equity mutual funds, which both invest in the most junior securities and, in the former case, often use extreme levels of tax subsidized debts are fortunate to earn half this figure.
Even when loans are interest-free as for some in this case, the borrower gets no material benefit since, like subprime equity loans in developed countries during last decade, this simply advances consumption. Advancing consumption may be advantageous to the consumer, as he or she beats the Thai baht inflation, but will usually fail to promote industry. It is therefore not surprising that "Thai households ashlee simpson tour increased both their borrowing and their consumption roughly one for one with each dollar put into the fund". Unless all that borrowing is going towards education, housing and other investments, this is likely an economic loss—even when interest-free.
One benefit however is that debtors and creditors in these developing nations will evolve their credit systems and legislations when mass defaults occur, as S. Korea experienced in the '90s and India is trying to untangle itself from. As we have seen in the aftermath of the subprime debacle, the consequences of promoting thrift are easier to deal with than those pushing another loan.
Instead of more austerities, many fatcat Plutocrats controlling ashlee simpson tour developed world like the PIGS and America could take a leaf from the lady to lend a helping hand to the 99% piggies who are suffering from their benign neglect and socializing the debt burden.
We need to take out politics out of the analysis and look at the social positive benefits from financial inclusion, production of assets and the decline in unorganised money lending. Looks likea good scheme for nations like India!
The main risk of microfinance is NPL. There is typically no asset security, and frequently borrowers ashlee simpson tour have no permanent address. If the programme is designed to accept high NPL rates, have a strong focus on collections, a department assigned to help SME's plan/run their business better, and have an element of government subsidies, then it should work.
In addition, note that you must be a resident of the village - Thailand has a very effective population registration system, which comes into play all the time. Wanna get married? Divorced? Travel overseas? Buy a house? Sell land? Get a loan? Better have your State ID. It would be tough to dodge a State issued loan.
It may cost 30% more to distribute loans vs direct-cash transfers;