Sunday, November 4, 2007

Micro finance, character loans, and discrimination laws

I just chaired a session at the annual Net Impact conference on micro finance in the US. Three speakers from non profit banks made what they called "character" loans to smal, risky, and unprofitable borrowers. Ironically, the discrimination laws of the US have induced most commercial banks to abandon "character loans" in favor of formal credit scoring.


  1. Does anyone find it particularly ironic when "policies that allegedly care" have the unintended consequence of hurting those they are supposed to help?

    Who knew that "anti-discrimination laws" keep the impoverished from getting access to loans. Was this addressed or discussed by those on the panel trying to broaden the "net" of capitalism's supposed impact??

  2. A story on NPR recently discussed web based person-to-person lending. One of the sites,, decribes themselves as "America's first people-to-people lending marketplace" and "was created to make consumer lending more financially and socially rewarding for everyone."

    "The way Prosper works is intuitive to people who have used an online auction. Instead of listing and bidding on items, people list and bid on loans using Prosper's online auction platform."

    Check it out. It was the first time I had ever hear of such a thing, and still could not imagine lending to people I never met. But as commercial banks refuse to lend make these types of loan, this practice could be become ever more popular.