Fledgling Democracies

The Christian Science Monitor has a story about the exorbitant interest rates banks charge borrowers looking to start small businesses in the tiny former Soviet republic of Kyrgyzstan. Rates typically come in around 20 to 25 percent, with microfinance loans sometimes reaching an exorbitant 48 percent.

High demand/short supply for capital coupled with the country’s instability are to blame for the situation, the article says. Interestingly, though, Kyrgyzstan ranks higher than Russia (among 178 countries) in a 2008 study of business climates done by the World Bank: the logistics of entrepreneurship in the country are quite manageable, but the challenge of finding capital leads to some creative financing.

This 3,800+ word microfinance story focuses primarily on Mongolia, not a country this blog is primarily concerned with but a place where microfinance is experiencing what the piece calls ‘growing pains.’

The writer mentions early NGO microfinance initiatives such as the Golden Fund for Development, a UN program started in 1998, and offers up some relevant stats on microfinance for Eastern Europe and Central Asia: the total number of borrowers served has grown from 1.5 million in 2000 to 5.1 million in 2006, with the total loan portfolio of all MFIs reaching $12.5 billion.

The 11th annual Microfinance Centre Conference will be held in Ulaanbaatar, capital of Mongolia, May 20-30, and is expected to address competition and attempt to make some sense of the complicated landscape now inhabited by private investors who came on the scene as the market expanded.