In light of my previous blog post pertaining to industries understanding and catering to their clients, I did some reading on a current hot topic: behavioral finance. This then led to research on behavioral microfinance and I came across a great article on Microfinance Gateway by Kate McKee, a Senior Advisor at CGAP, titled “Meditations on the U.S. Sub-Prime Crisis and the Lessons and Implications for the international microfinance industry.” She explains the importance of new and ongoing research conducted by consumer psychologists and behavioral economists in finance and microfinance.
McKee highlights 5 main observations upon which she draws parallels between the sub-prime crisis in the U.S. and microfinance:
1. Unsustainable products and practices
2. Buyer bias and wishful thinking
3. Shaky credit processes in the mortgage “value chain”
4. Investors in the world of “slice-and-dice” finance
5. Regulators in the hot seat
MFIs are starting to introduce more innovative and somewhat complex financial products and services to their clients. While we should not curtail innovation, it is important that researchers can keep up with the development of financial products by teaming up with behavioral economists and consumer psychologists to fully understand possible repercussions and implications for clients. Furthermore, it would be informative to see more collaboration with anthropologists and sociologists to better understand the impact that products may have on the livelihood of clients, especially when the growth of microfinance is so high and unregulated. Professors such as Hotze Lont and Otto Hospes have been doing research on this topic and published a book in 2004 called “Livelihood and Microfinance: Anthropological and Sociological Perspectives on Savings and Debt.” Although microfinance is largely considered in the context of Economics it is important to not neglect other spheres of study that are highly relevant to the well-being of those being included into the formal financial market and can provide insight to how institutions and their services can be structured.
2 comments:
This is not surprising that the only realistic alternative for them to borrow from informal market at a rate much higher than the market. Community banks, NGOs and grassroots exploration savings and credit groups worldwide have shown that these micro-loans can be profitable for lenders and borrowers that microfinance is one of the most effective strategies reduction of poverty.
islamic finance certification
Despite the success of microfinance institutions, only 2% of the world approximately 500 million small businesses is estimated that access to financial services.
Credit Report
Post a Comment