Saturday, July 09, 2005

A Question for the economists out there...

I know a few of the people who read this have some economic background, even if only at an IR/Political "Science" level. Unfortunately, I come to this from the military history prong of the fork and I'm very much a disciple of the Alec Douglas-Home school of economics so I was wondering if anyone could provide and answer to this. All email much appreciated.

I was watching a documentary a few weeks ago in which a journalist for BBC Africa went on a bit of a tour about with former Ghanian president Jerry Rawlings. They chatted to various Africans in different countries at the grassroots level and one of the things that came up time and again was that African small businessmen frequently find it well nigh impossible to get credit. Thus, many African businesses never really have the opportunity to get off the ground and many good ideas are killed in the womb. What I'm wondering is this - if commercial banks are not prepared to deal in this sort of environment, would it be a worthwhile experiment to set aside a portion of the aid money to try to come up with some sort of a banking mechanism to extend credit the aspiring African businessmen? I'm aware that the loss rate on this would probably be high but the loss rate on African aid is very high anyway and while we write off millions upon millions of pounds worth of debt owed by corrupt or incompetant governments it seems to me that a lot of intelligent, motivated Africans are stuck in a rut for want of a few thousand quid's worth of startup funds.

As I say, I freely admit that I don't have a sound grasp of the dynamics behind this. I'd be very interested to hear from somebody who does.


Anonymous David said...

Microloans--small loans directly to individuals in the 100-500 dollar range--are very effective at helping create small businesses. In particular, if they're targeted at women, they're effective and have a remarkably good repayment rate.

2:55 PM  
Anonymous Anonymous said...

Economics 101: Money is just another commodity. If there would be a market for it, there would be a provider too. I'm sure that in local shops over there for example there is a lot of loan-book buying going on. An that's nothing short of a credit. Thus it is sure to assume that there would be already enough local people accustomed to credit giving to others. However something breaks. You want to guess what it may be? Simple put the people bragging about no credit possibility are not good creditors.

6:50 PM  
Anonymous David Silbey said...

[i] Money is just another commodity. If there would be a market for it, there would be a provider too.[/i]

That assumes that there's a fully-functioning market economy in whatever country you're looking at. That's quite often not the case.

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Blogger aidan said...

Fukuyama dealt with the economic effects of patterns of trust and mistrust in his book TRUST. They are quite dramatic and affect both the size and continuity of enterprises. You might also refer to studies of Uganda under Idi Amin when the asian business community were kicked out. If you cynically destroy the fabric of a society classical economics won't get you very far. There are many parallels in the UK where it suits people to distort market provision.
So your question is actually about linking economic support to the growth of civic structures: an excellent approach and likely to expose the roots of the problem, creating the crises that must be gone through.

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