Hey folks – been on the road the past few weeks so haven’t had a chance to post. But, I did like this nugget from Tyler Cowen on one of the reasons Microcredit works –
If you don’t pay up, your associate has to. The reality is that the person left holding the bag — who knows you well — will come seize your TV set or in some cases the process is a bit less pleasant. Part of the efficiency of microfinance is simply the separation of the lending and the “thug” functions.
I’m a Microcredit fan overall but like Cowen, instead of seeing it as a whole new way of doing business, I see it as an interesting alternative to traditional charity for a very underserved margin. However, even at this margin, many of the old rules of capitalism still apply. So I look forward to the day when Microcredit as well as its borrowers grow up, credit becomes more formal, and hopefully the “thug function” becomes the final reserve of the state.