Too Much of a Good Thing?

<p>The global microfinance revolution is about unleashing power.&nbsp; Even small loans can enable poor communities to transform their skills and energy into higher incomes.&nbsp; This is the basic idea celebrated by the 2006 Nobel Peace Prize to Muhammad Yunus and Grameen Bank of Bangladesh.&nbsp; It meshes with economic theory, and it&rsquo;s backed by thousands of success stories.<br /> <br /> So why, all of a sudden, does credit seem like a mixed blessing?&nbsp; A few months ago I joined thirty microfinance leaders for an off-the-record meeting at an estate outside New York City.&nbsp; Participants flew in from Africa, Latin America, and Asia.&nbsp; There were no guidelines and no set topics for conversation.&nbsp; But one theme emerged more strongly than others (and was highlighted in the group&rsquo;s public statement): we need to start worrying about over-indebtedness.&nbsp; Now.&nbsp; Before the big crash.<br /> <br /> This is a remarkable turnaround.&nbsp; For decades the problem has been that poor households have way too little access to loans.&nbsp; But with many microfinance institutions doubling in size every two years, barriers to access are breaking down.&nbsp; Poor borrowers now may have options, weighing offers of credit from competing microfinance institutions vying for business.&nbsp; The response of customers increasingly is: &ldquo;Thanks!&nbsp; I&rsquo;ll take them all!&rdquo;&nbsp; Borrowers thus take loans from multiple lenders, and lenders stay in the dark about how indebted their customers are.&nbsp;<br /> <br /> In slowly growing numbers, borrowers are getting in over their heads, triggering even more borrowing and even worse problems.&nbsp; Credit bureaus would help, but they&rsquo;re largely absent in the communities served by microfinance.<br /> <br /> This sounds a lot like the problem with credit cards in the US.&nbsp; For most people, credit cards are a great financial tool, but they&rsquo;re easy to abuse (Hello, Amazon.com!), and not all financial institutions are equally good at policing themselves.&nbsp; Microfinance is not today suffering a crisis of over-indebtedness of the sort seen in segments of the credit card market.&nbsp; The biggest problem is still that way too many people lack access to decent financial tools, not that too many people have too much access.&nbsp; And that makes it exactly the right time to start thinking about the problem.&nbsp; Before the crash.</p>