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It was bound to happen- BusinessWeek caught the microfinance bug today, publishing an extended overview of this booming industry in India.  Rather than simply explaining the microfinance movement and describing how it works, the author gets into some of the structural imbalances spurring market demand for credit in small amounts.

The article contrasts India’s prosperity on a national level “its economy has clocked 8%-plus growth over the past three years” with the unequal distribution of these gains “roughly 30% of India’s 1-billion-plus population lives below the poverty line” to illustrate the reason why representatives of ICICI bank would be traipsing around rural India handing out $100 at a time.

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Uganda and India have further institutionalized the growing political popularity of microfinance by attempting to regulate it.  A closer look shows how government intervention can facilitate or hinder the growth of these programs.  

Uganda’s government has chosen to simply limit the interest rate creditors can charge to keep up with inflation.  This effectively kills any profit motive that might have existed in a financial sector where it is already difficult to convince lenders to give out loans with high fixed costs and low yields.  

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In its excellent “Have Your Say” section of the site, BBC News recently wrapped up an open debate on the prospects of Africa’s enterprising youth and the obstacles that may prevent them from realizing their full creative and productive potential. The primarily African respondents had some fascinating insights, and aside from the few that criticized a lack of initiative on the part of young people in the region, most hammered at governmental issues including corruption, bureaucratic hassles and a lack of social programs.

One Zambian contributor had this to say: “Youths have the skills but there are no jobs and no money to start small business. Skill alone is meaning less. Let the Governments start providing loans/ grants and create jobs for youths otherwise the near future will be affected. On the other hand there are few insinuations which are offering skills to youths more especially orphans who have no one to pay for their fees. Hoping the international conference taking place in Nairobi will tackle the above issues and find lasting solutions. other it will just be another rhetoric which just befits participants with allowances and other stuff.”

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As the flow of remittances has expanded massively in recent years, many in the private sector have taken advantage. While this has positive effects for facilitating formal transactions (rather than, say, having your cousin deliver money by hand), there has not been enough competition to keep prices reasonably low. Transfer services such as Western Union can take as much as 15% of the money a migrant worker sends his family in Nicaragua from the US. Rates this high hurt the ability of remittances to have positive development impacts and give senders incentives to transfer their money through informal networks.

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Everyone agrees that microfinance is the coolest thing since sliced bread.  That’s why in the last two months we’ve seen it covered by the Financial Times, Reuters, The Globalist, The New York Times, The Economist, The LA Times, Business Week, CNN, and The Times of London.  And in all likelihood there are other articles still hovering beneath our radar. 

I must confess that at first I was excited to see the mainstream media weighing in on development issues affecting the base of the economic pyramid.  I held the opinion that microfinance articles—no matter how repetitive and formulaic—attract publicity to an important cause that draws less attention than Paris Hilton’s latest sexcapade.  But I’ve changed my mind.

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