Tim Harford gives Us a good article on Microfinance, but leads me to assorted questions. The paramount question asks Why microfinance does not reach into American society. It would be equally relevant, with only a change in the Numbers. I study the Issue, wondering how the basic matrix of microfinance accounting could be brought to American society. This brings on the idea of a altered format of microfinance, a relative new revision of the Credit Union format. The basic rationale would be that Subscribers would contribute Weekly or bi-Weekly with possible initial lump-sum Payment (the largesse of the lump-sum could be $300-$1000, with other payments to be $10-$50 apiece). The basic format would be that the initial lump-sum must be reached, thereafter loans up to the lump-sum limit could be taken out at anytime. The Interest on the Loan would be around 50% per year compounded bi-Weekly, but half of the Interest would be shared with the Subscriber/Depositor upon complete payment of the loan. It would likely become a valuable tool for Americans to Save, while initial Deposits would be helped by the federal and State Tax Rebate systems.
The genus behind the system consists of the ease by which the Deposits can initially be made, the normalcy of Payment size in comparison with Credit Cards, the alternative to Splurge spending upon receipt of lump-sum payments, the high Interest rate inveighing for quick payment of the loan, and a method of Saving in sharing half the Interest on the loan upon payment. The size of the Account, under proper handling from the loan institution, would practically increase automatically (aided by a base 4% Interest rate on unloaned amounts), while providing a rewarding rate of Saving through the simple repayment of all loans. The loan institution would have to be a Dept. of a larger Bank to be initially viable, but the Accounting methodology would be simple and straightforward, with attendant benefits for both bank and Depositor.
A major bank will have to be found to fund and establish the necessary networking, but compliance with the terms of the loan payments would be both lucrative and simple of construction. The bank would find itself absorbing Tax Rebates from many levels of Income, utilizing simple Math to determine monthly payments on loans for relatively rapid repayment of all loans, the ability to show Depositors definite Gains through normal loan reduction, and make a good Profit from the exchange. Bankers will claim there is not sufficient demand for such small loans, though I imagine that the investing Bank will find Depositors from all Income levels up to $150k, simply to have a small loan avenue without hassle which pays high benefit from early reduction of the loan; loan availability again renewed with a pleasant Return for loan repayment. lgl