Monday, July 13, 2009

Microcredit Loans: Savior of the Unemployed?

By: Sherry Rashad

Ever since Dr. Muhammad Yunus’ Banking for the Poor microcredit scheme gained kudos from the “conservative” world of global corporate finance as an economically viable way to alleviate global poverty a few years ago. Many have now wondered if our current economic downturn could set back this “altruistic” financial program. Especially considering that most of our current financial woes is due to lending money to people – i.e. providing credit - without first verifying their ability of paying them back. Even though the worst of our on-going global credit crisis seems to be over – if you believe the financial experts – unemployment seems to have established itself as the new long-term problem that could hinder the full recovery of our ailing global financial system.

The specter of long-term unemployment will probably plague the global economy long after a full recovery is achieved because corporate downsizing – especially in the wake of the Far Eastern construction sector decline – usually means job layoffs. That is firing employees to you and me in our current post credit crisis world. As an altruistic financial stimulus that gained a foothold long before the sub prime credit crisis became a full-blown global issue, microfinance / microcredit loans had always provided the “unemployable” third-world poor access to a well-paying trade. Especially in developing countries where access to jobs in the local jobs market is next to impossible without first paying exorbitant bribes to the human resources gatekeeper. Not to mention the lack of safety nets – like unemployment compensation – during times of corporate fiscal austerity.

In my own experience, I’ve never encountered a microfinance / microcredit funded business that went bust – so far at least in my neighborhood. But if you believe the latest assessments of financial experts that the global unemployment problem due to the post credit crunch corporate downsizing will continue to linger long after the global economy starts to recover. Then microcredit and microfinance schemes are a good and economically sensible way of providing a safety net for laid-off workers.

Even though the recovery of our global economy could be hastened through capital investment, our corporate social responsibility-aware venture capitalist still lack the investment confidence to reinvest their money once initial public offerings are available. Because the corporate irresponsibility of firms that laid-off their employees during times of corporate fiscal austerity will become a politically hot-button topic. Thus making the investment in microfinance and microcredit programs not just ethical, but also very sensible – from a financial perspective – as well.


VaneSSa said...

As more and more foreign construction workers are being laid-off from East Asian economic powerhouses like Macau, Singapore, and others due to the decline in the building sector primmarily caused by our on-going global economic crisis. I wonder if allowing these laid-off workers - given that most of them still live in tribal communities around the ASEAN region - to earn money from their "ancestral wisdom" is the primary raison d'être by the newly-established microcredit lending offices for allowing these workers access to microfinance loans. Corporate social responsibility can be a tricky thing if your clients are largely uninformed about the inner workings of "Our Calvinist-Style Capitalism".

Sherry Rashad said...

The Dubai construction and property development slowdown will only make the unemployment problem in East Asia that much worse. Microfinance is no magic bullet, but it does provide start up money in the form of microcredit loans for those with a good business model that don't have the capital to start their own business.

Anonymous said...

thx u very much, i learn a lot