Micro finance hits the skids: Beware of similar trends where you live

The Credit Crunch of 2008 primarily hit ‘Wall Street’ and all associated with her. Think of this as Phase 2 of the Credit Crunch – and the worst hit are those at the bottom of the pyramid.

Undoubtedly, this new crunch is being precipitated by political pressures to control a largely unregulated micro-lending industry. Politicians have added a powerful impetus to consumer complaints and allegations of hardships resulting from “inhuman levels of financial exploitation” in the micro-lending industry. It started on the Indian sub-continent and has spread outwards from there.

Even Nobel Prize-winning economist Muhammad Yunus, the so-called father of micro finance, has fallen victim to this revolt. He was previously managing director of Grameen Bank, which has lent small sums to about eight million deprived people in Bangladesh, to help them start or run their own businesses as a first step out of poverty, since being created in 1983. Through partnerships with global brands, Grameen had secured employment for more than 30,000 people.

In India, politicians have accused bankers of profiteering from the poor and, in some places, banned further lending or recovery of debts. Aggressive selling by scores of unregulated micro finance firms has pushed huge numbers of already desperately poor farmers deeply into debt.

Beyond ‘Main Street’ this is really the Indian sub-continent’s equivalent of America’s subprime loans. It has given governments and banks further legitimacy to regulate and control.

While changes in Europe and the USA to separate ‘Main Street’ and ‘Casino’ banking have created some more certainty, this new broadside from ‘the bottom of the pyramid’ threatens to spread a new level of financial havoc around the world.

Warning: Hazardous thinking at work

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