can anyone tell me how to manage risk around microcredit loan repayment if you're not giving the loan(s) to a group or association? i'm trying to figure out how to ensure a high payback rate w/o peer pressure.
can anyone help??? i can pay you in baked goods. my latest creation is a peach galette and my coworkers say it's yummy. PLEASE HELP!
bonus points (and treats) if you can also explain the finer points of commerical investment regulations as they apply to microfinance in laymen terms. my eyes are starting to glaze over from all the techincal mumbo jumbo. i'm a sociologist, public policy analyst, and writer at heart. i don't do numbers...
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just off the top of my head, i'd say you'd either have to get creative in coming up with some sort of collateral to use, or you'd have to start with an amt subst smaller than what is demanded, but then it'd be gradually increased as trust is gained with the client.
as for commercial lending, don't have any experience with that, but if you want to send over something you're stuck with i could try to translate.
A great question, and although this one isn't in my "wheelhouse," I have a few quick general ideas.
The nature of the problem is that collateral is not available (Yunus), in large part because the poor don't have legal title to what little they do have (DeSoto). While this means that the U.S. lending system isn't a perfect analogy, I think some general principles of lending (and investment) still do apply.
1) Diversify! Reduce some of the risk from your end. This is the most elemental, yet somehow among the most ignored. (Insert egg-basket cliche here.) Don't put all investment money in microlending
2) Like diversifying, if you have partners, you can diffuse some of the risk of your microcredit investment.
3) Increase transparency and personal communication as much as possible. A) Credit scoring is being developed for microlending purposes. B) Get to know the lendee personally to judge whether they have the knowledge of their market, their drive and ingenuity, and to increase lendee's psychological desire to repay. C) Learn their market, so you can give advice if problems arise and to evaluate whether the service or good to be provided matches that market. D) Monitor whether the lendee's needs are being met (whether they prefer cash or credit loans, recurring or single payments, etc.). As a fellow social scientist, we both know that people want to please people they know and respect more. --These all require some legwork, although it is possible to join networks that have local sources and provide information via the internet. If one lesson is to be learned from the subprime meltdown, it should be that when you reduce transparency in the market (via too-clever-by-half complicated investment packages), both lenders and lendees are more likely to get burned badly and will not see when problems arise until they are way too late!
4) Economist Tyler Cowen has concluded that requiring smaller weekly payments from the lendee helps habituate the lendee and encourages responsibility.
This is all I have off the top of my head, but I guess this is a start.
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