Irresponsible Lending – Some Lessons
21 August 2008
I am sitting in the modest headquarters of GHAPE in Bamenda, north west Cameroon.
I am surrounded by the membership books of some of the organisation’s small borrowers, detailing their loan totals and bi-monthly repayments. There is no column for defaults. When the women (it is mostly women) meet to make their regular contributions they stay in the room until the right amount of money has been collected. If someone cannot make their payment then the others have to make up the difference. But they all know each other and it’s never good to be embarrassed in front of your neighbours.
Across the office, Eric is counting the notes and coins collected this morning. And on the radio they are talking, appropriately, about loan defaults. But not in microfinance. It’s the BBC World Service and they are discussing the inadequacies of financial regulation in the West and the embarrassment of Northern Rock, the bank which had to be rescued by the UK government.
It rather got me thinking. Perhaps I could organise a fact finding mission to GHAPE’s offices for the battered bosses of Britain’s Financial Services Authority. I’m sure they could learn a few lessons.
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21 August 2008 at 7:53 pm
Good idea, but the loan bosses in the West are interested in maximising their profits by whatever means they can, in the mistaken hope that they can jump off the band wagon before the inevitable bursting of the credit bubble.
But there is something so ironic in the fact that the poor behave so much more responsibly than the rich.
21 August 2008 at 9:29 pm
More links - I head to Bamenda in two weeks to work there as a fundraiser. I live in Newcastle, the hq of Northern Rock.
Thousands of local people will lose their jobs. Northern Rock foundation - a very charitable wing that has given millions to local causes has also been hit. Northern Rock even sponsors the local football and rugby teams.
The reason behind their difficulties (from Wikipedia):
“On 12 September 2007, Northern Rock asked the Bank of England, as lender of last resort in the United Kingdom, for a liquidity support facility due to problems in raising funds in the money market to replace maturing money market borrowings.[41] The problems arose from difficulties banks faced over the summer of 2007 in raising funds in the money markets, caused by the subprime crisis in the United States. The bank’s assets were always sufficient to cover its liabilities, but it had a liquidity problem because institutional lenders became nervous about lending to mortgage banks following the US sub-prime crisis. Bank of England figures suggest that Northern Rock borrowed £3bn from the Bank of England in the first few days of this crisis.”
So yes, it may be Britain’s financial services that are taking a battering (as my local community here is) but a fair share of that problem is imported from the USA.
22 August 2008 at 6:23 am
[...] Irresponsible Lending – Some Lessons [...]
30 August 2008 at 9:26 pm
I must take exception with the last statement that a fair share of Northern Rock’s problems are imported from the USA. For a UK institution to be exposed to a credit risk in the US, they must have knowingly and willingly looked to invest in some set of debt instruments offered there with the intent of boosting their own income. Why would a UK mortgage institution expose themselves to this without taking full responsibility for the encumbent exposure?