Thursday, September 20, 2007

China's Microcredit Question

By: David Veneziano, Women's Initiative CFO

This article from Forbes looks at the Agricultural Bank of China's microcredit program, funded from Australia, which has been running at a loss for community development purposes. The bank is about to go public, so there's a big discussion around how this will happen. Will they tighten up their operations? Will part of the program remain a "policy bank"? What's best for the loan recipients, for the investors, for China's economy?

The answer is simple: do you want to help disadvantaged people or not? There's a cost to everything and if you want to help people you have to pay for it.

At Women's Initiative, we don't expect to break even because we will make high risk loans, but we will not charge our clients a premium for added risk. We don't do this because it would put a big burden on the clients' ability to use/leverage the money we are lending them. It's a vicious cycle: more risk = more interest = more risk because of more interest payments, etc.

We hope to grow large enough to break even and we can do that by keeping our process streamlined, and keeping losses down by having a relationship with people we lend to. That's good enough.
It's tough to make money even as a regular bank. Why do you want to make money off of disadvantaged people? Isn't the government there to help?


Women's Initiative for Self-Employment said...

it's an interesting question, though: how does a formerly socialist country understand capitalist banking?

They don't really need a lesson in helping the poor--although western bankers clearly do--but they do need to understand how to compete in global economies in a way that profits their investors.

Original Post by: claire | September 20, 2007 at 11:20 AM

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