Credit Where Credit’s Due: The Global Poor Should Be Integrated into the Formal Financial System

The initial swell of enthusiasm for microfinance has somewhat subsided recently, as an elegantly simple idea founders on the rocks of reality. Despite the early successes of projects such as Muhammad Yunus’s Grameen Bank in Bangladesh, billions of people from Dhaka to the Dominican Republic remain shut out of the global financial system. The scarcity of credit available to the world’s poorest is still a significant impediment to ending global poverty.

The current crisis in the Indian state of Andhra Pradesh is a case in point. A rash of defaults- and even suicides- among borrowers have led to calls for stringent regulation to combat ‘predatory’ lending practices. Some local politicians have gone so far as to draw parallels with the explosion of sub-prime mortgage defaults in the United States in 2008.

While the situation is serious, such parallels are overblown. According to banking officials quoted in the New York Times, India’s large banks currently have approximately US $4 billion invested in the microfinance industry. Not pocket change, but still far too low to pose a systemic risk to the Indian economy.

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No ‘Bolivarian Alternative’ to Transparency

Venezuela Lost Over US$33 Billion in Illicit Financial Outflows in 2008¹

Hugo Chávez again took to his twitter account last week, expressing his support for Ecuadorian President Rafael Correa in the midst of an uprising by disgruntled police officers. While a firm fan of new social media, Mr. Chávez tends to take a dim view of the more traditional sort. Since his election to the presidency in 1998, he has sought to muffle opposition, with state dominance of the media at the heart of his ‘Bolivarian Revolution’.

Invariably a government seeking to control the media is a government with plenty to hide, and the Chávez regime is sadly no exception. Booming oil exports and a lack of government accountability and transparency have combined to foster a culture of rent-seeking. The effects of this have percolated through the economy with the ultimate burden of the effects of corruption falling heaviest upon Venezuela’s poorest.

Transparency International recently ranked Venezuela as one of the most corrupt countries on earth, alongside the Democratic Republic of Congo. Meanwhile, inflation has soared—increasing over 30% from 2007 to 2008 according to World Bank figures—as has violent crime in the country’s capital, Caracas.

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