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Is the Microcredit Model of Lending in Mexico a Casualty of Neoliberalism?

James A. Baker III - Institute for Public Policy
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April 6, 2015

Microcredit was conceived by nongovernmental organizations (NGOs) seeking to enable the poorest of the poor to achieve credit. This revolutionary method of using community-based initiatives to provide small-scale loans has been celebrated by the global community ... where models often target women in poverty-stricken communities and are designed to stimulate small-scale economic growth, such as family-owned stores or eateries.

Unfortunately, today, private investors provide many of the funds controlled by microcredit lenders. In turn, microcredit institutions are compelled to impose high interest rates on low-income borrowers in order to generate a return on investment. The significance of this transformation of the microcredit industry — from a nonprofit tool for development to a for-profit industry — cannot be overstated.

Mexico has recently become a flashpoint in the debate over the benefits of microcredit lending, and it may well be that the future of this rapidly evolving “business” will be decided in the sprawling metropolis of Mexico City. With more than 2.5 million clients, Mexico City-based Compartamos Banco is the largest microfinance bank in Latin America and stands out as the most prominent microcredit lender in Mexico. In 2007, the company sold off 30 percent of its stock for $458 million in its initial public offering. Compartamos has risen to fill a niche in Mexico’s economic sector: Roughly 30 percent of Mexicans live on less than $2 a day and lack access to traditional financial services. In examining Mexico’s microcredit industry, the question of whether or not these loans truly help the poor and marginalized “get their foot on the ladder” is especially salient.

Read the rest at Houston Chronicle


Forget microfinance. Lenddo is using social data to determine credit scores for a new group of lendees. (Lenddo)

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