Oxfam micro-loans

[fivemack]

From some junk mail they've just sent me, it appears that Oxfam are going into the micro-credit business; they want me to help capitalise them so that they can make £25 loans to create small businesses in (initially) Sudan and the tsunami-struck bits of Sri Lanka.

I recall rezendi's fulminations about the aid industry in general; the bits of the third world I've been to are clearly not in as much a mess as Sudan or Sri Lanka, but the impression I had is that what they lacked was in fact capital, and this seems to me a reasonably sensible way to provide it.

But there are those reading who know more about aid than I; is there some nasty catch here? Less-than-entirely-ethical investments (Russian oil in particular) have been remarkably good to me over the last year, and to have Lukoil, Rio Tinto Limited, PetroChinaCo and Walmart-de-Mexico pay to capitalise roti-makers in Batticaloa Province seems somehow appropriate.

Comments

[senji.livejournal.com]

This is kind of the venture-capital version of lending people goats?

[redbird]

Or cell phones--one of the successes of the micro-lending stuff has been lending women in rural India money for mobile phones, one to a village. The women then sell time to their neighbors who can call relatives who have moved to the big city--whether Delhi or London--or check prices for their agricultural products. The women have a nice little business, and the village as a whole benefits.

[papersky.livejournal.com]

Maybe when the mobile phones were more expensive a few years ago? I hear that these days almost everyone in India and Africa now have mobile phones, especially in rural areas.

[rezendi.livejournal.com]

If you got that from me, then I misspoke/was unclear - almost anyone within walking distance of a town has access to mobile phone service, but phones themselves are only owned by the relatively well off. In a smallish remote town in Africa, pop. 1000, surrounding walking-distance rural pop. 10000, you'd probably have two or three mobile-phone stands and a few hundred people with phones of their own. Better reach in big cities: in, say, Kampala, maybe a third of the people you walk past in the downtown might have phones. (Much fewer in the surrounding shantytowns.)

India's much more complicated. There are over fifty million mobiles there (judging from this), but that is from a population of a billion.

[purpletigron.livejournal.com]

My general feeling is that micro-credit == good. But any good principle can have a bad implementation...

[scat0324.livejournal.com]

I don't know what Oxfam are doing different to Opportunity International (http://www.opportunity.org.uk/), but I know their work is pretty good. UK stuff is Oxford based, and I know some of their staff, but I don't know too many details.

[ewx.livejournal.com]

There was an Economist article about micro-credit a while back - I don't recall if you have online access to their archive but if so it might be worth your while looking for it.

[dd-b.livejournal.com]

My general impression of micro-loans is very favorable. I'm pleased to see them going mainstream -- but that does mean we get to find out if they actually work in the mainstream. From what little I know, far worse people than Oxfam could be trying it out.

I remember at least one of the articles I've seen was on a program that loaned only to women, so that may have distorted their results (made them different from what a general program would see, I mean).

[rezendi.livejournal.com]

Microcredit is a great idea. But I'm a little bit suspicious of microcredit as provided by well-meaning Westerners.

Grameen Bank, which introduced microcredit, was created by a Bangladeshi professor, is 94% owned by Bangladeshi stakeholders, does a lot of good, turns a profit virtually every year, and has successfully expanded outside Bangladesh; more power to them.

Alas, there is no African equivalent, and one possible problem with Oxfam providing microcredit is that they might shoulder out African-owned, African-financed microcredit banks; they would have a major competitive advantage by a) being not-for-profit b) operating at a loss by taking donated Western money. This depends on the relative levels of supply and demand for microcredit, of course, which I don't know anything about; maybe there's enough demand for capital that there's space for everyone. And even if Oxfam's microcredit did hurt/prevent the existence of competing African banks, its net benefits might still well be positive. But you should at least be aware that some of the usual negative side effects of aid still apply.

That said, I would certainly recommend this above almost all other forms of direct aid.

Tom Discovers Capitalism #3 (?)

[fivemack.livejournal.com]

I've written to them, trying not to sound too much like an Economist editorial:

In principle, I'm very interested in your programme to provide microcredit to individual entrepreneurs in Africa and in the tsunami-hit parts of the world.

But, since Oxfam is a non-profit-making organisation, I am concerned that your involvement might end up competing on hopelessly unequal terms with any already extant organisations in those parts of the world: in comparison to a small African bank, Oxfam has vast access to cheap capital. The Grameen Bank is the gold standard for microcredit, but is indigenously Bangladeshi and has worked almost from the beginning with commercial as well as aid intent.

Basically, I've read the reports of the havoc that generously-donated clothing from the West wreaked upon the textile industries of Africa, and want to be sure that Oxfam's intervention isn't going to destroy worthy banks in Sri Lanka ... I have absolutely no concern about competing with national banks that have never even considered services to the poor, but I would be unhappy if Oxfam ended up competing with Grameen-type organisations.

I suppose my real question is, do you see positive returns on your loan capital, and do you use these positive returns to add to the stock of loan capital rather than to be dispensed as grants? Are you accounting separately for the loans and the grant schemes? My concern is that delinquent loans might end up accounted for as grants.

Grameen has showed that microcredit schemes can become self-sustaining (they have requested no donor funds since 1998); is that the desired end-condition for Oxfam's microcredit scheme? If you were proposing this as an alternative form of investment - I provide a few thousand pounds of startup capital and in thirty years will, if all goes well, have some tiny fraction of the ownership of one of the major banks of Sudan - I would happily contribute substantially. But I'm a little unclear on the merits of what is basically a bank financed by donated capital.

I imagine this is a rather odd attitude to have as a donor - to treat Oxfam as a risky investment rather than a soul-cleansing donation - and I suspect they'll tell me to go away, and at worst pin up the note on a dart-board as a sign of the malevolence of the capitalist ethos.

I would buy shares in a Grameen Bank IPO. Would you?

Re: Tom Discovers Capitalism #3 (?)

[(Anonymous)]

would buy shares in a Grameen Bank IPO. Would you?

Probably not. I'd have to study a proposed IPO to decide, of course.

My reason for saying "probably not" is that I strongly suspect their high mind-share and high reputation would lead to their IPO being significantly overvalued.

This is not intended to in any way diminish their real economic success or the good they've done, of course. And I might "contribute" to an IPO, if I felt my investment would do good even if it weren't economically profitable for me.

Re: Tom Discovers Capitalism #3 (?)

[rezendi.livejournal.com]

It would depend on the nitty details, but I'd certainly seriously consider it.