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The concept of micro credit has been around for a while. Recall that Muhammad Yunus together with Grameen Bank were awarded the Nobel price in this context.

I don't have references at hand but I heard that the interest rate that obligors pay for such loans are quite high (but they would pay even more at standard banks if they gave them money at all). The cost per credit are high too - which is a problem. On the other hand micro credit can be seen as development aid - a sales argument.

All together the concept could be a great field for mutual-funds (I saw one or two).

My question: why is the concept of micro credit not more fashionable (maybe some quant/economic reasons)? Who are the players? Do there exist large mutual funds or other securities to participate in this kind of business? I know that there are platforms - but they are not-for-profit directly to retail customers - right?

EDIT: I just found a guardian article that describes the problems of the concept of micro credit business in South Africa. If I read this correctly then the concept did not help the poor there to get out or poverty.

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1 Answer 1

Micro finance did not work in certain parts of South Africa. That's not surprising. Neither this, nor anything else is a "panacea" (cure-all) for various financial problems.

Micro finance apparently works in SOME parts of the world (India, Bangladesh, etc.), where the ethos and institutional framework make it viable. It may work better with women (who have less access to other credit and are more susceptible to peer pressure), than with men.

Practically by definition, microfinance is not highly scalable. It works, if at all, "locally," where local lenders know and understand local entrepreneurs. That's why it doesn't lend itself well to large institutional activity from e.g., mutual funds.

The fact that it works SOMEWHERE is very much to its credit, and probably what won it the Nobel Prize. In so doing, it made the world's financial "space" somewhat more "complete" than it would otherwise be.

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-1: "women [...] are more susceptible to peer pressure." The reason micro-credit works better with women is that they are in many cases more responsible. Besides, this statement is just backwards. –  Roy Nov 14 at 18:20
    
@Roy: The two statements are not incompatible, and may even be cause and effect. "Women are more responsible because they are more susceptible to peer pressure," that is, they care more about what the community thinks. –  Tom Au Nov 14 at 18:32
    
Or maybe they are just being responsible because they care for their family. –  Roy Nov 15 at 14:26
    
@Roy:"Family" can a form of "peer pressure." At least if women are judged more by others for how well they take of their family than men are –  Tom Au Nov 15 at 21:48
    
@TomAu Do you know anything about the mutual fund industry in this area? I know European players - what are global/US players? –  Richard Dec 2 at 10:32

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