CIAO DATE: 05/2009
Volume: 9, Issue: 2
Summer/Fall 2008
Message from the Editor (PDF)
Forward (PDF)
On August 20, 2008, we had the unique opportunity of speaking with Dr. Jeffrey Sachs, Director of The Earth Institute. We discussed various topics related to economic development, paying close attention to one particular aspect of poverty alleviation—microfinance.
M. Jahangir Alam Chowdhury
It is often argued that the formal and informal financial sectors in developing countries have failed to serve the poorer section of the community. Collateral, credit rationing, a preference for high income clients and large loans, and lengthy bureaucratic procedures of providing loans keep poor people outside the boundary of the formal sector financial institutions in developing countries. On the other hand, the informal financial sector has also failed to help the poor. Monopolistic power, excessively high interest rates, and exploitation through the undervaluation of collateral have restricted the informal financial sector in providing credit to poor people for income generating and poverty alleviation purposes.
Does the Microfinance Lending Model Actually Work? (PDF)
Rafael Gómez, Eric Santor
Microfinance institutions (MFIs) have expanded throughout the developing and developed world and now serve over 10 million households worldwide.1 Despite the relative poverty of their clients, MFIs have been able to extend credit to poor households, while still maintaining high repayment rates and financial sustainability. Much of this success has been attributed to MFIs innovative use of peer group lending—the practice of allocating loans to individuals with little or no collateral— but with social capital in the form of peers who are also co-applicants and who in many cases are jointly liable.
Romanticizing the Poor Harms the Poor (PDF)
Aneel Karnani
A libertarian movement that emphasizes free markets to reduce poverty has grown strong in recent years. The think tank World Resource Institute advocates ‘development through enterprise’ and emphasizes business models driven by a profit motive that engage the poor as producers and consumers. The Private Sector Development network, part of the World Bank, focuses on private sector led growth in developing countries. CK Prahalad a prolific exponent of this perspective argues that selling to the poor people at the ‘bottom of the pyramid’ (BOP) can be profitable and simultaneously help eradicate poverty.
Sovereign Wealth Funds and the International Monetary System (PDF)
Anthony Elson
Since the end of last year, much public attention has been focused on the growing importance of sovereign wealth funds (hereafter SWFs), which are large investment pools managed by national governments primarily among oil exporters and emerging market economies. Many of these governments have accumulated substantial foreign reserves because of large trade surpluses, some of which they have begun to invest in a range of financial instruments that is more diversified than is typically the case for central bank international
The Cultural Impact on China's New Diplomacy (PDF)
Wilfried Bolewski, Candy M. Rietig
China is in a state of universal change—economically, culturally, politically and diplomatically—and the international community is taking note of the Chinese posture as an ascending global power. As a nation, China has economically liberalized and opened up to the world while retaining a government that by some definitions would be considered authoritarian.
Microinsurance for Brazil: The GILR-Bond (PDF)
Bernardo Weaver
Microfinance, in general, worries about alleviating poverty in the developing world. But, how do the poorest people avoid falling into poverty traps on their way to the middle class? What recourse do people have from becoming poor due to illness, natural disaster, or the loss of assets like livestock? Microinsurance is insurance that caters to the lowest income groups in a country and serves those who are not usually served by private insurance.
Brazil: Keeping the Lights On (PDF)
Susana Moreira
In 2001, Brazil endured severe power shortages that resulted in mandatory rationing and ultimately, in a significant reduction of GDP growth.1 Worse than the personal inconvenience and economic contraction was the embarrassment all Brazilians felt for what had happened. The “country blessed by God” had shown the world, once again, that it was unable to put its vast natural resources to good use. Brazil barely escaped forced electricity rationing; however, there is widespread belief among energy experts that rationing may yet occur within the next four years.
Law Markets: A model for Predicting Laws, Governments, and Institutions (PDF)
Graham Lawlor
Law Markets is a positive economic model, which treats laws as tradable goods, citizens as consumers of laws, and governments as producers of laws. This model borrows heavily from the fields of Public Choice, which models political actors as economic agents, and from New Institutional Economics, which analyzes social contracts in the presence of transaction costs. The financial fields of Efficient Markets Theory and Behavioral Finance provide tools to measure transaction costs and empirical studies to demonstrate long-term trends.
Identity and the Bomb (PDF)
Michael Busch
The Psychology of Nuclear Proliferation: Identity, Emotions, and Foreign Policy. By Jacques
E.C. Hymans. New York: Cambridge University Press, 2006. ISBN: 0521850762