Finance, Forex and Investments

Why do commercial banks have little interest in helping the poor to build successful businesses in both develo

Why do commercial banks have little interest in helping the poor to build successful businesses in both developing and developed countries?

Public Comments

1. Banks do not have any interest in helping anyone but themselves. Their business is not helping people, it's making money.
2. Because they will need to manage micro credits, which mean that they will pay people to manage little amount of money, that could not even cover the wages of the employee hired by the bank! So the poor need to gather in order to attract some funds big enough to worth the expenditure of the bank and allow some profits to be made. Of course, they are a new trend in south east Asia that do micro credit in a new way, but in this part of the world, wages level allow this to be done more efficiently, as they are not earning as much as in the developed world!
3. Come to south africa if you are the right color and know the right people you can be getting rich while other people suffer
4. It is simply about risk. Much of the failure of a business is management and under capitalization. Banks are not going to lend to someone without a tract record and nor should they. When a bank lends money they are taking the loss if something goes wrong.
5. A good way to answer to this question would be to explain the success of microfinance institutions which has proven to be socially and financially sustainable (WHEN they are correctly managed). They (MFIs) have answered to all problems that could not be managed at a reasonable cost by traditional commercial banks: - guarantee: they have replaced the traditional guarantee asked such as mortgages or financial title by moral (other person) or physical guarantee (goods, stocks) but overall giving the client the promise that he may receive a larger credit if he proves to be a good payer in the former loans. - risks mitigation: financial risks of the potential borrower are analysed in a simplified way using techniques and software tailored to microfinance industry. Credit bureaus now disseminate black and white information on clients to all MFIs (e.g to inform the institution on the clients current credit situation with other's institutions) - transaction costs: Loan officers are trained to a new methodology which completely differ from banks traditional techniques. On-site visits are preferred to heavy IT investments. - trust: the commercial banks traditionally do not trust micro entrepreneurs projects, mostly because they do not know the industry and do have the capacity to analyse the potential risk while MFIs do the analysis and have built a knowledge. Usually commercial banks in developing countries are happy with few clients (corporate, embassies, international organisations) and prefer not to step in the micro world, although this is changing (see Oikocredit, Citibank, Dexia). Note also that part of MFIs are increasingly taking the form of commercial banks. I added below a pdf doc that list formal commercial banks in developing and transitional that are active in the microfinance industry. See link below for more info on MF
6. They don't care about rich or poor.....they care about the risk they are taking lending money out. Would you lend money to someone who is not good with money? Someone you don't even know? If you answered yes, then it's no wonder you are poor.
7. Risk factor.
8. Banks are in the business to make money. They are not philanthropists.