A pitch for micro-lending

Many of the economics books I've read recently discuss, in some aspect, poor nations - why they remain poor, why institutional lending doesn't work, and what programs do work. Every book highlighted the benefits of micro-lending.

Many people who live in destitute poverty can dramatically improve their lives with small loans - less than $1,000. Most cannot qualify for personal credit - if a construct even exists - despite having the means to repay such a small amount.

Most banks don't like micro-lending because the cost of the paperwork to process the loan exceeds the potential profit from the interest on the loan. Indonesian banks implemented micro-lending programs a few years ago. They have bypassed the paperwork altogether by simply requiring a government issued ID that they can scan and they limit loans to $200. For the banks that are doing it, this sector of the lending market is one of their most profitable and has the lowest default rate.

Most poor nations are poor because they lack a financial infrastructure. This is where a micro-lending non-profit organization enters the picture. For details, see "Kiva".

FYI, for those of you who would like to profit from micro-lending in the US, try Prosper. It appears they have finally cleared their federal hurdles and are accepting new lenders an borrowers again. They've been around for nearly 6 years - at least that is how long I have known them - so they are not a fly-by-night operation.