Access to Capital

As the year winds down the class tends to find it harder to focus on new material. For those of you teaching AP or IB economics, you may even face a situation where your semester has ended. After all, with the exams done there may be little real incentive for the students - aside from sharing your passion for the subject.

This brings us to today's topic of interest - microfinance. Economic development is one of those topics often left to the end of the text, and frequently the idea of building economies can be less than interesting. But the idea of microfinance - lending small amounts to people to start a small business is interesting. It was even good enough to garner the 2006 Nobel Peace Prize.

If you check out the video, you'll see that the Grameen Bank was formed as a not-for-profit organization. Another group that does similar work is Kiva.org. The story is quite consistent. Access to small amounts of credit can make a huge difference in the lives of the poor, allowing them to pull themselves out of poverty into situations of relative comfort or even affluence (by local standards).

Now here is a controversy. A Mexican bank has gotten into the microlending business, and has found the arena to be quite profitable. Is that "right?" Some would say "no" because the stockholders/owners of the bank are making money from the poor. It's one more instance of the poor paying their precious resources to people who already are "rich." Others say "yes" because a commercial financial institution can bring more resources to the poor than a not-for-profit can. This means more of the poor benefit. And isn't bringing them out of poverty the real goal?

I can see both sides. What do you and your students think? Please share.