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The contradictions of finance – micro-finance in developing economies


I read this piece (http://bit.ly/aAKjUL) on The Economist” website recently. Some words from the piece struck me immediately. The words are “For all this to happen, banking regulations in many countries need to become more flexible”. Okay, if you read the full piece you’ll see I am paraphrasing to suit myself.  BUT, what a contradiction. The developed world is in the throes of a severe economic depression because banking regulation was “light-touch”.

As this piece reports, micro-finance institutions are essential for farmers and small enterprise in developing countries.  The majority of these institutions (approx 70%) only offer credit, but not savings products. Encouraging “micro-saving” may not be an easy task, but all banks need liquidity to survive and some should come from  locally-held savings.  So, on the face of it, deregulating to allow more micro-finance institutions (MFI) to take savings seems like a good idea. Let’s hope the lessons of scant regulation has been noticed by  MFI’s. Or maybe it’s time for someone like the IMF to take a “real” global view of regulating the banking sector.

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About martinjquinn

I am an accounting academic, accountant and author based near Dublin, Ireland.

2 responses to “The contradictions of finance – micro-finance in developing economies”

  1. Salah Boukadoum says :

    It’s important that we have lending and saving capability for the poor, but it’s not enough – in fact by just focusing on the dollars, the situation can be made worse. There are many nonprofits and social enterprises (low-profits) that use microlending as the hub for programs that also provide literacy training, healthcare, clean water solutions, business training and childhood education. Folks in my circle calls these anti-poverty programs “Microfinance Plus.” Good examples are AlSol in Mexico and Esperanza International in the Dominican Republic. You might also be interested in the Good Returns model, which drives capital into social enterprises in a new and compelling way.

  2. martinjquinn says :

    Dear Salah, thanks for your great comment. I’ll do some research on what you mention and write something more on this topic in the future.

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