Wednesday, March 19, 2008

Asian Micro Lending - Internet Style

Back in the early 90s there was an article written up in the Wall Street Journal about a Korean family business that was re-building after the riots in L.A. During the profile they discussed how the family had immigrated to the U.S. and through micro loans from their church they started their business, bought their home, and fulfilled other lending needs. Apparently that had never used a bank. All the families of the church pooled money and did this for everyone in the church. I was fascinated with the concept of this Asian micro-lending concept and have tried to find information about it on and off for years.

Apparently this type of micro-lending is very common in Asia and also in the Middle East and I am guessing other countries in Africa also have similar systems. What is interesting about the concept is that it appears to be systematic and as reliable as banking is in the U.S.

I am also fascinated by the concept of how the Internet re-makes old industries or finds new ways for them to work more efficiently. There are far too many examples to go through, but you know many of them by name like eBay.

When you take the Internet and mesh it with this concept of Asian micro-lending you get web sites like and, both are micro-lending sites that utilize the Internet to match borrowers and lenders together. Both sites have received national recognition and a basic search on Google will uncover tons of articles and blogs on both.

I don't really want to discuss these sites again as it has been discussed much better by others. I do want to discuss how another industry is in danger of having the Internet kick its tail if it doesn't get its act together.

The banking industry right now is going through a serious credit crunch. Lack of liquidity by banks as well as shedding bad debt is causing them to become stingy with their lending practices. Just a year or so ago people with decent or good credit could get all the credit they wanted. Now they are struggling to get the bank to come up with similar terms and coming up empty.

Everyone has probably heard that necessity is the mother of invention. Well the concept of micro lending over the web is here and if the banks don't find a way to open up their purses a little wider they will find a bite being taken out of their backside by these micro lending sites.

Banks that believe the loyalty from their clients because of the relationship and the a face to face transactions may be surprised how quickly that loyalty vanishes in the face of need. The need for cash will outweigh those factors and people will move to the micro lenders. Now some may return when the credit crunch is over, but many will be perfectly content to stay put. Some will actually prefer the new method. The micro lending may really take off and hurt banks over time.

During the Depression a similar credit and liquidity crunch occurred, no, I am not that old, and it caused people to become innovative. People started using barter and actually printing their own money that could be used within their groups. The point is that when government or industry don't step up and help in rough times people will find their own solutions. This is a good thing. In my humble opinion it has been a talent woefully lacking in modern society.

Now with the modern Internet if the banks don't step up and take the lead people will again become innovative and move around them. I have read numerous stories on the Internet in the last several weeks or months of small businesses and people already using these sites because their banks wouldn't give them the cash they needed.

Interestingly many of these stories have a variety of quotes from the person that received the loan. These people sound so grateful and talk so highly of how "these people" stepped up and helped them in their time of need. Many say they will gladly do it again and the terms and ease of getting the money made the experience very nice.

Uh oh, bad news for banks. I don't hear too many people gush this type of love for the bank even in good times. The banks may be shocked at how little loyalty and love they really do enjoy from their customers.

As an open message to the banks, you guys better get your act together. The Internet has already made minced meat out of many other industries that failed to heed the call of the consumer. You appear to be next. You may wake up one day and find banking is only a minor activity for people and that most small businesses and consumers have embraced an age old concept from Asia, with a mixed in modern Internet and made you obsolete.