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« The Web Portal - Glitz or Simplicity? | Main | Starting a nonprofit: nature or nuture? »

July 10, 2008


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Jake de Grazia

You know I'm 100% with you in wanting to beat back the naysayers and hail microlending as an essential aspect of most economic development packages, but I think you need to be careful with your response to Vijay's first point.

I couldn't link to his article, so I'm doing a lot of assuming here, but I think the point he's trying to make is that economic prosperity and percentage employment in the SME segment are most often very well correlated.

Again, I'm pulling statistics from admittedly fallible memory, but I think G8 economies average between 60% and 70% employment in SMEs, while the developing world sees 90% of its population either self/family-employed or working for huge (often state owned) companies. SMEs only employ 10%.

A lot of people see the development of the SME job market segment as THE magic beans, and it looks to me like they have the historical data to make a solid argument.

As for how to counter Vijay's claim that microlending is by nature out of step with growing an SME-heavy economy, I think all you have to say is that the best MFIs (the kinds of MFIs with which Wokai is actively pursuing partnership in China) focus not only on rural income smoothing but also on business activity diversification, micro mergers and acquisitions, and graduating clients to the formal financial sector.

Microlending, if carried out according to real, long term vision, can be a hugely helpful tool in the creation and support of a growing SME segment (and healthily developing economy).

It's important to remember that not all MFIs are able to look very far or very clearly into the future, and thus some MFIs are, in fact, hindrances to development. By no means, however, does that HAVE TO be the case.

Sam Lee

You'd be interested in the following article. The authors basically argue that while the "entrepreneurial" aspect of microfinance might be over-emphasized, microfinance (not just loan) brings a range of other benefits, centered around providing some stability to people's life:

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