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

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.