Microfinance and fair trade are trendy these days. Rich people somehow feel guilty towards poor (South) people. Poor people do not enjoy the same access to financing opportunities as the North people. Moreover poor people can't sell their products at what has been called fair price.
Microfinance is about lending small amount of money to poor people who have a project in mind (What_is_Microfinance.pdf ). What is funny is the gullibility of far too many people with respect to microfinance. Microfinance is a good thing, it makes them feel less guilty. They see it as an alternative to allmighty (destructive) capitalism.
All this is pure crap! Microfinance is finance at its best. It is easy to lend to poor people in poor countries because you are almost sure that they will repay. It is difficult to lend to rich people because you're never sure that they will reimburse! How can it be? To answer to this you have to understand what makes lending a difficult task in the first place.
In rich countries, banks lend to people whom they don't know. They try hard figuring out their creditworthiness and more often than not ask for collateral. Economists talk about moral hazard and adverse selection to describe the phenomena at stake.
With microfinance, lenders are in the ideal situation: First, they can discriminate among borrowers, they simply don't lend (in many instances) to men (who run with the money to have a good drink). Women are reliable, hence they get the money. To make sure that the money is well-spent contractual provisions often involve the community in which the lending woman live. For instance, if she fails to pay, the community may be on the hook and have to repay for her or be punished by having a more difficult access to the next loan. The community plays a monitoring and a supportive role to ensure success. This is the dream situation for any banker!
History teaches us that the minute growth kicks in, the minute you deal with strangers (who are not all crooks of course), you start having problems and you end up with economics and finance professors!
So next time you hear somebody telling you how different microfinance is from ugly capitalism, do yourself and your friend a favor: Don't feel unnecessarily guilty, don't be gullible: microfinance is just about Economics and Finance 101!