The WSJ on microfinance

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The front page of today’s Wall Street Journal looks at the business-sense of microfinance, and in particular at Vikram Ajula and SKS:

Mr. Akula, the 37-year-old founder of SKS Microfinance Pvt. Ltd., is at the forefront of the latest trend in "microlending," or making tiny loans that help entrepreneurs lift themselves up from the lowest rungs of poverty. Long the province of charitable institutions, microlending is starting to attract the attention of big business. Intrigued by India's red-hot economy and potential market of more than a billion consumers, financial giants such as Citigroup Inc., ABN Amro Holding NV and HSBC Holdings PLC have already provided millions of dollars for SKS to lend out. SKS, in turn, says it has notched up healthy profits for the past three years…

The practice isn't entirely altruistic. Default rates on microloans tend to be very low -- under 3%, in many cases. By comparison, U.S. credit-card issuers typically charge off around 5% of outstanding balances. Even so, microlending overhead often gobbles up most of the profit. That's because it can take hundreds or even thousands of loan officers to manage millions of small loans to often-illiterate farmers in remote villages. Transaction costs and paperwork can be overwhelming. Most microlenders live hand-to-mouth, relying on wealthy patrons or development agencies to keep the money flowing.

Non WSJ-subscriber link. TIME magazine also recently named Akula one of the 100 people that shape the world.

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