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Essay on Development Economics
The purpose of this paper is to analyze the micro-credit environment for Argentina and how it leads to the economic development of the country.Economic development is the process of improving the quality of human life through increasing per capita income, reducing poverty, and enhancing individual economic opportunities. It is also sometimes defined to include better education, improved health and nutrition, conservation of natural resources, a cleaner environment, and a richer cultural life.
Micro-crediting/financing
Micro finance is the attempt to improve access to small deposits and to small loans for poor households left unattended by banks. Access to deposits implies savings contracts that, for the bank, cost less than funds from other sources and that, for the saver, are safe, liquid, and convenient. Access to loans is the ability and willingness to borrow and to repay at a price that covers the long-run cost of an efficient lender. Access to loans is thus the nexus of demand based on ability and willingness to repay and of supply based on low-cost ways to judge risk and to enforce repayment. The poor pay more for financial services because the poor cost more to serve. They demand small loans for short terms, but they cannot signal and guarantee credit worthiness with constant income from a salaried job or with physical collateral. Likewise, poor savers cost a lot to serve because they hold low balances and make frequent deposits and withdrawals.
Micro-credit initiatives in Argentina
As in Mexico, Brazil, China, India, and South Africa, micro-credit in Argentina presents a puzzle. Despite huge populations and/or mid-range per-capita incomes, microfinance in these nations lags behind such unlikely places as Bangladesh and Bolivia. Two factors help explain this. First, the old paradigm still reigns in these countries, and public development banks can sometimes be the smothers of invention................
