Micro lending or banking for the world’s poor has been made especially famous by Professor Yunus. Professor Yunus and the Grameen organization have paved the way for new lending practices to reach millions of persons living in developing countries to help break the vicious cycle of poverty.
Given the recent problems and blatant examples of corruption exposed during the recent financial crisis in the developed world, I became curious about what safeguards are in place for the multitudes of expanding micro lending programs in developing countries.
An informative beginners article on the subject entitled Delivering microfinance in developing countries: Controversies and policy perspectives (Bhatt, 2001) provides an overview of vehicles, technologies, and performance assessments for financial service delivery to the world’s poor. Bhatt points out that absolute poverty is 75% lower in villages with Grameen programs than in villages without such programs (Khandker, 1996). However as a word of caution Bhatt further mentions that performance of other programs has not been as encouraging. Other programs have been plagued with such problems as high default rates, inability to reach sufficient numbers of borrowers, and a seemingly unending dependence on subsidies.
Given the recent implosion of the financial services industry in the developed world, particular attention should be made towards safeguarding lending practices to the world’s poor. We cannot afford for a scandal to erupt in the micro lending that would discredit an industry that has helped millions of people escape poverty. This is an area ripe for opportunity for organizations such as FINCA, Grameen, BRAC, KIVA, as well as independant agencies to further develop international standards and monitoring practices to ensure maximize outcomes and reduce corruptive influences.
