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Small lenders count too

Lending to the working poor of the developing world is a business that few mainstream investment banks have ever considered. But they will not overlook it in future. Attitudes are changing as bankers see how local institutions which specialize in small-scale lending - known as microfinance - can turn a mass of tiny loans into a profitable business.

Banco Solidario in Bolivia, Grameen Bank in Bangladesh and Indonesia's Bank Dagang Bali are not known names in the financial markets. But they are all thriving as established microfinanciers. As these institutions prosper, they are keen to raise capital on the international money markets.

The concept of microfinance is simple: sums between $2 and $600 are lent to small, labour-intensive, low-technology enterprises at market rates. Once the recipients have proved that they can pay back the money, they are eligible for borrowing larger sums. In most cases customers must open a savings account as part of the deal.

In many countries, the working poor previously had to rely on moneylenders for capital. Their interest rates were so extortionate that borrowers could not prosper, and most got further into debt. By receiving more manageable loans from microfinanciers, argues Marguerite Robinson, an institute fellow at the Harvard Institute for International Development, borrowers are now able to expand their businesses and generate profits:

"In Indonesia moneylenders charge a flat rate of interest of between 7% and 40% a month," explains Robinson.

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