Most banks will not accept fur coats and televisions as collateral for loans.
However, representatives of the Women's World Bank suggested that would be a productive way to develop struggling economies.
In a presentation that blurred the boundaries between classroom lesson and company info session, Fawzia Naqvi and Laurie Weisman explained the benefits of using microfinance to stimulate growth in emerging economies. The two women related anecdotes and industry expertise to a full Wharton classroom yesterday.
Microfinance is an alternative to the traditional method of assisting developing countries. Traditionally, non-governmental organizations such as the International Monetary Fund and the World Bank give enormous loans with many conditions to developing governments that are often ill-equipped to use them. Instead, microfinanciers make small, almost entirely unconditional, loans -- all under $1,000 -- to poor entrepreneurs, mostly women, according to Weisman.
"Microfinance is not a panacea for poverty alleviation," Naqvi said. "It is the provision of sustainable financial services to a low-income population."
In an interactive session laden with questions, Naqvi outlined the goals and needs of the microfinance industry.
"Microfinance is not a charity -- it is a financial industry and should not remain a subsidy-dependent business. Subsidies are a threat to keeping our doors open," said Naqvi, hinting that subsidized loans and operations can lead to destructive inefficiencies. While most microfinance institutions are not self-sustaining, Naqvi insisted that the industry needs to work to become independent of donors.
Women's World Bank is a consultant to microfinance institutions worldwide. Its clients try to cover the costs of providing credit in developing countries by charging high interest rates, around 18 percent. Weisman explained that while this is generous compared to the exorbitant rates charged by local moneylenders, it still cannot compete with NGO-subsidized loans, which come with lower interest rates and fewer strings attached.
"Both banks and entrepreneurs need to have their feet held to the fire to perform," Naqvi said, "otherwise the money goes to waste."
Microfinance has a more personal and culturally sensitive approach to granting credit than most financial institutions.
"We try to take things that have more of a personal significance than a financial significance," Weisman said.
Both women expressed incredulity that a large group of students came to hear about a field without large expense accounts and six-figure salaries.
"What's happened to Wharton?" Naqvi asked.
Those in attendance said they think this exactly what should be happening to Wharton.
"I think it's great to see an effort to diversify the curriculum," Wharton and College sophomore Aziza Zakhidova said. "I wish Wharton were better able to capitalize on the development of emerging economies and sustainable growth."
"I enjoyed the presentation a lot," Wharton sophomore Linshuang Lu said. "It was informative and interesting to hear such a different perspective."
The Wharton Microfinance Club sponsored the event.
