Banking for the world's poor

Microcredit -- tiny business loans extended to poor people in developing countries -- is a proven development strategy, expected to benefit 100 million of the world's poorest families by 2005. But the world's poor desperately need access to a broader range of financial services -- microfinance is the more apt term -- to improve their living standards.

The staggering flows of money sent home by migrant workers are a case in point. The Inter-American Development Bank estimates that remittances from Mexicans working in the United States this year will total US$14.5 billion, more than Mexico earns from tourism or foreign investment.

Too often, however, those who get the money are victimized by rapacious fees and exchange rates. Governments can help by reducing transaction fees, but what the recipients need most is a place to put their money. In many countries, the poor, especially in rural areas, lack access to commercial banks. Mainstream banks need to make an effort to extend their reach. Until they do, established microlending organizations can help fill the void in ways that encourage private saving and, equally important, enlarge development capital in poor communities.

Stanley Fischer, the noted economist and former deputy director of the International Monetary Fund who is now a vice chairman at Citigroup, reminded those attending a microfinance conference earlier this month that during the 1990s East Asian financial crisis, a large Indonesian bank suffered nearly 100 percent default rates in its corporate portfolio, but only 2 percent in its microfinance portfolio. Fischer, once a microcredit skeptic, is on the board of Women's World Banking, which sponsored the conference to drum up Wall Street interest in microfinance.

Large global banks are starting to think of microfinance as a viable business, not just a trendy charity. Deutsche Bank, for instance, is about to open a $50 million fund to provide capital for microfinance organizations. A real microfinance revolution could further empower the world's poor.

-- The New York Times