6/22/08

Collateral in Microfinance.  Tyler Cowen in a blog post, notes that:

"It is a common myth that microfinance loans have no collateral.  I sooner worry that the process of collateralization is too thorough.  Remember that microfinance loans are made to small groups of five to ten people, typically neighbors.  If you don't pay up, your associate has to.  The reality is that the person left holding the bag -- who knows you well -- will come seize your TV set or in some cases the process is a bit less pleasant.  Part of the efficiency of microfinance is simply the separation of the lending and the "thug" functions.  Banks can lend to high-risk individual borrowers without themselves resorting to the illegal intimidation practices of the village moneylender.  The dynamics of cooperative behavior in the village are not always pretty but overall it works better than the moneylender; if nothing else the person seizing the collateral knows that next time around he or she may be the non-payer." 

posted June 22, 2008 at 5:30 p.m.

Indian Agriculture:  Problems and Potential.    The New York Times series on "The Food Chain" gives an overview of problems in Indian agriculture.  There is too much in this article for a summary to do it justice, but here are a few snippets:

"With the right technology and policies, India could help feed the world. Instead, it can barely feed itself....Experts blame the agriculture slowdown on a variety of factors....   [S]ince the 1980s, the government has not expanded irrigation and access to loans for farmers, or to advance agricultural research. Groundwater has been depleted at alarming rates.  The Peterson Institute for International Economics in Washington says changes in temperature and rain patterns could diminish India’s agricultural output by 30 percent by the 2080s. Family farms have shrunk in size and quantity, and a few years ago mounting debt began to drive some farmers to suicide. Now many find it more profitable to sell their land to developers of industrial buildings.  Among farmers who stay on their land, many are experimenting with growing high-value fruits and vegetables that prosperous Indians are craving, but there are few refrigerated trucks to transport their produce to modern supermarkets.   A long and inefficient supply chain means that the average farmer receives less than a fifth of the price the consumer pays, a World Bank study found, far less than farmers in, say, Thailand or the United States.  ...

This had been the Green Revolution’s other pillar — a fixed government price for grain. A farmer could sell his crop to a private trader, but for many small tillers, it was far easier to approach the nearest government granary, and accept their rate. For years, those prices remained miserably low, farmers and their advocates complained, and there was little incentive for farmers to invest in their crop. “For farmers,” said Mr. Swaminathan, the plant geneticist, “a remunerative price is the best fertilizer.” Mr. Swaminathan’s adage proved true this year. After two years of having to import wheat, the government offered farmers a substantially higher price for their grain: farmers not only planted slightly more wheat but also sold much more of their harvest to the state. As a result, by May, the country’s buffer stocks were at record levels.

How to address these challenges is a matter of debate. From one quarter comes pressure to introduce genetically modified crops with greater yields; from another come lawsuits to stop it. And from yet another come pleas to mount a greener Green Revolution."

The NYTimes article refers to this study from the Peterson Institute for International Economics on impacts of climate change on international agriculture,  to this study from the World Bank on horticulture in India  (why is everything so hard to find on the World Bank website?),  and to this paper by Alex Evans of Chatham House. 

posted June 22, 2008 at 8:30 a.m.