Gimme the Sub-Sub Prime

In college, I wrote my senior thesis on microfinance. Simply put, microfinance means providing financial services to people who do not have access to credit, savings, insurance, etc...typically in "micro" sizes.

As I sat in my seat on the Bear Stearns equity trading floor last March and watched our stock cut in half one Friday, and then over the weekend become JP Morgan's newest real estate asset, I decided, "This microfinance stuff is looking pretty cool right now...I want to get in." So in between a few other interviews, I started cold-calling people within the microfinance world for ideas how to find my way in. I also attended any microfinance lectures/events in NY at the time, including one conference in particular at Columbia University hosted by the "Microlumbia Fund" -- love that name. The keynote speaker was the former President of Women's World Banking and she delivered an amazing speech. I had attended many microfinance events over the past 3 years and read a few hundred articles, but this was the least sugar-coated and most intellectually honest speech on microfinance I had heard to date.

Approaching her afterward I bluntly said, "I'm at Bear...you know I'm serious about doing something new...can you help me find an interesting opportunity?" A couple days later she presented me with 11 MFIs (microfinance institutions) around the world where she could at least help me get an internship. Fortunately, as I heard the words "internship" I also recalled the words I heard a few days prior from my boss at Bear: "If you do what you love, the money will take care of itself." Of the 11 choices, the one that stood out was a company in India recently started by some of the top bankers in the country, who I had actually read about during my thesis research two years prior. Their new venture was started in late 2007 and is solely focused on bringing financial services to individuals AND enterprises in under-served regions of the country, using the latest technology and financial creativity. Fortunately they were looking for more than interns and here I am.

So that's my personal connection to microfinance. In light of the financial world's on-going implosion, caused primarily by irresponsible origination, I wanted to share these 2 recent articles about how "sub-sub prime" is holding up and currently rapidly growing the world...

Poverty: Cheap Loans at Insanely High Rates? Give us More.
http://www.newsweek.com/id/160074
"What the world needs right now is more subprime lending—a lot more of it. Yes, I know that in the public imagination, subprime lending is the scourge responsible for crippling the U.S. financial system. The massive extension of credit to people who lacked extensive credit histories and documented wages seems, in hindsight, supremely stupid. But far from the madding, depressed crowds of Wall Street, billions of people are starving for credit..."


Micro-Lending Seen Expanding Despite Credit Mess
http://www.symbiotics.ch/en/latest_news.asp?id=b1270
"...We don't see any slowdown in interest in microfinance, on the contrary," said Ivan Pictet, a senior managing partner at one of Switzerland's largest private banks, the Geneva-based Pictet & Cie. Many of the borrowers are women, and the default rates are only 1 to 2 percent. "We have a lot of lessons to learn from that," Pictet told journalists during a World Microfinance Forum meeting in Geneva."

[Emphasis added by me]

This second article is a bit too rosy in my opinion since while the end borrowers aren't slowing down in their demand for loans/services, some MFIs (microfinance institutions) particularly in India, are having greater trouble accessing affordable funding themselves. India faces both the global tightening in credit plus inflation. The result has been MFIs face very steep interest rates to obtain cash to then lend. This of course means even higher rates to the end borrower.

One of the businesses our is getting into is the securitization (a 4-letter word in most the world) of microloans to offer MFIs access to debt at a lower interest rate. Unlike with the securitizations of sub-prime and even prime mortages in the US, the underlying assets here (i.e. the $250 loans taken by women in rural India) actually have some worth to them.

It's just my hope that the financial paradigm shift we're witnessing worldwide will serve as a cautious lesson for those like myself and my company who are currently seeking to find ways to meet the financial needs of the 4 billion people in developing countries without access to financial services.

Pictures and Special Guests...

I setup a Picasa Web Album so if you want to see my photos just use this link...

My Pictures

Here are a few examples below. About 300 pictures up on the site so far, mostly from the first 6 weeks here. If I had been taking many pictures in September you would've seen exotic places such as New York City, Frankfurt, and my office...not too much India travel recently.

But that will change this month with the arrival of Miss Rachel McKenny on Wednesday! I need to show Rachel the beauty of India in all her greatness and demonstrate why living in this country rocks. Wish me luck.


All the Best,
Peter