Sunday, 12 October 2008

Swaminomics sings a new tune

In my last post, I talked about how Swaminathan Aiyar was being unfair in blaming the financial crisis on financial inclusiveness in his article 'The Perils of Inclusive Loans'. In this week's article, 'What MFI's can teach Wall Street', he seems to be contradicting himself.
Big financial institutions of all sorts are in dire straits across the globe. But one category remains unaffected - micro-finance. Even as the global financial system freezes and giants like Lehman Brothers collapse, micro-finance institutions (MFIs) are expanding unfazed. Famous financiers face defaults big enough to wipe them out, but MFIs report virtually zero default...
So, the MFI model is small but sound. But don't lavish excessive praise on it. Western banks lend far too much. But Indian lenders - including MFIs -lend far too little. Rural studies suggest that poor rural households need Rs 25,000 of credit per year. MFIs provide far less. The balance is made up by borrowing from relatives and moneylenders. The system cries out for more formal credit...
So, don't get too excited by the fact that we've avoided the excessive lending of Wall Street. Bemoan the fact that our stunted financial system fails to reach hundreds of millions. Microfinance has its merits, but is not enough. The big challenge is to move from micro-loans to mini-loans of Rs 50,000 to Rs 2 lakh. These alone can transform poor borrowers from objects of pity to objects of envy.

So a couple of weeks ago, he thought that giving loans to poor people was a bad idea, this week he says they should be given more and bigger loans. Yeah, whatever.
Almost makes me consider subscribing to 'The Hindu' instead.


  1. You don't subscribe to the Hindu? Gasp.

  2. Nope -it's too heavy and stuffy to read in the mornings. And no comics. Comics are important.

  3. Of course Hindu has comics. It's in Metroplus.

  4. Some rather heavy reading these days huh? Dante, Said, Tao...

    I tried reading Orientalism, twice. Never got past the introduction.

  5. that's how i compensate for reading the TOI instead of the Hindu :)
    If you'd seen the list a week or so ago I was reading Modesty Blaise. These things go in cycles. I don't expect to complete 'Orientalism' either, but that's not an excuse to not start.