Now you too can be a banker

“A favor conferred in the time of need, though it be small is much larger than the world” – Thirukkural

Rich gets richer: So what’s the magnet that the rich have to attract money? For Tatas, can not only simply dream about being in the top 5 steel makers in the world, but they can bid aggressively and acquire an Anglo-Dutch steel giant Corus group, which is 3 times their size. Birlas can go ahead and acquire a US aluminum major Novelis paying $6 billion in an all-cash deal. Ambani’s are not far behind either. There are rumors of a possible joint venture with US-based Dow chemicals in another multi-billion dollar deal.

Oh yes, all of them are rich. But they are not spreading their empire with their pocket money. Instead investment bankers like Credit Suisse and ABN Amro are queuing up to lend to these rich guys never minding the risks involved as they firmly believe in these super riches ability to transform the businesses. But will a small businessman in a village has the same luxury to dream big to expand his business to the near by town betting on the loans from banks? Unless they produce a collateral security, which is more or less equivalent to the loan amount itself, chances of the loan getting sanctioned are very remote.

Emergence of Microfinance: For years, the poor depends on local money lenders who charges ridiculous interest rates or some giant loan sharks who operates in nexus with criminals as they do not have access to the traditional banks. Dr. Muhammad Yunus started a revolution to change all that by introducing the microcfinance concept, believing that poor people can be reliable borrowers too. And the result is for everyone to see. Microcredit achieved what the alms to the poor and other free schemes failed to do. It alleviated poverty in many families, proving that rich or poor, access to credit at reasonable rate is the vital link to growth.

Well, if all someone needs is a few thousand rupees only, why can’t you and me contribute the same instead of knocking the doors of World Bank and other Investment Bankers for help? It’s not just a wishful thinking. I’ve heard about Kiva.org (thru Steve Ham’s blog), which lets you connect with and loan money as little as $25 to unique small business in the developing world. So with a single click we can be a micro financier too.

However, this is not philanthropy it’s plain business. You are lending to an entrepreneur in need of money, and you’ll get back your money as his business develops. The idea looks simple in paper. But its success depends on identifying the right people; otherwise there is a possible misuse of the system by some crooked minds. For that Kiva has partnered with microfinance institutions across the globe that has knowledge of the local population and ensures a smooth loan process only after proper due diligence. But the sad thing is, Kiva does not have any small Indian businesses in their borrowers list currently.

Yes, it’s better to teach a man fishing, than giving him a fish. But it’s not fair to ask the poor to dive deep into the sea to get their fish, without giving proper access to the capital to get their boats and nets. I’m waiting for a day, where I can lend to a farmer in Orissa who badly needs a few thousand rupees to buy fertilizers and pesticides or to a handloom weaver in Tamil Nadu who need that cash to upgrade his business.

Will someone build a similar robust system in India to promote the social lending concept for the poor?