Wednesday, August 11, 2010

A short Obituary of DEBT-based Microfinance


Or, the Imminent Death of MicroDebt, Micro Loans & MIVs (microfinance investment vehicles)

Palella's Next-10 Laws, Corollaries & Predictions for MicroFinance (Numbers 11 - 20):

(11) As the Euro and US$ are debased to Zero during the Terrible 2000 Teens (2013-2019), their associated short- and loooooong-term interest rates will rise into the 9 - 19 % range so their governments can continue to attract "stimulative" deficit spending. When investors can make so-called "risk-free" returns like this in established currencies in "safe" developed countries, why would they invest in "risky" MIVs (microfinance investment vehicles) yielding about the same rate? They will not, and the global microfinance industry will enter a decadal "Slough of Despond". Likewise, the EU and Uncle Sam (America) will pay credit-card rates to feed their debt binges.

(12) As a corollary -- The Euro will become toilet paper and the the U.S. Dollar patriotic confetti. When "risk free" EuroAmerican interest rates are 9 - 19%, what fool will invest in "risky" MIVs (microfinance investment vehicles) in the Developing World? Why take the added risk? Thus, liquidity for the microfinance industry in the Developing World will decline precipitously.

(13) Stagflation -- "That '70s Show!" -- economic stagnation + "inflation" or hyper-debasement of the Euro and US$ (aka "inflation" for dummies) will lead to a coming Stagflation of the 2000 Teens (2013-2019), which will cause the MicroStagnation of microfinance or microdebt (or micro payday loans).


(14) The Economic Root of all Evil will not be traditional "inflation", but rather "Debaseflation" -- a word I coined in June 2009 -- google it to check, and read my nonconformist financial blog from that time period:

(15) The Club of Rome and their 1972 book, "The Limits to Growth", finally come of age, in particular as applied to energy supplies and national energy autarky (no typo -- google it). In short: any national energy dependence on US$ 100+ per barrel imported oil = a national balance of trade deficit = a debased currency = high interest rates = no need for investors to take risks on micro loan derivatives such as MIVs (microfinance investment vehicles).

In sum, MIVs in energy-dependent countries will offer poor risk-reward. Better to stay home. "The world may be known without leaving the house" -- Lao Tzu [ approx. 500 BC. ]


(16) The 2006 Nobel Peace Prize was the tombstone of microfinance -- a leading indicator of the Death of the field. It led directly to idol worship, the abandonment of independent THINKING & QUESTIONING, the CREMATION of micro INNOVATION, and thus the end-stage renal disease of microdebt finance or micro loans. In short, the Recognition of Mere Men led to clonal soldier microants bereft of Innovative Thinking pursuing IPO profits via micro-bank equity offerings in the Developing World. In sum, microSenescence by nobel idolatry, or microIdolatry, sadly.

In contrast to these mere men, rather, what would the Son of Man do in the micro world? Something, probably, that rhymed with "Carbon Manna". Hence the name, which came to mind spontaneously, like a Gift from Heaven.

(17) "Creative Destruction" and the nano world of microfinance are still mutually exclusive. The Deep Debt Rut from Dhaka runs deeper still. In all other fields, it is agreed the student must surpass his master = creative micro destruction:

"Grasshopper, when you can snatch the micro pebbles from my hand, then it will be time for you to leave."

But the microfinance "industry" perpetuates staleness and the worship of senescent graven images.

(18) What's in a name ? Micro debt or micro loans = pay-day loans supersized & internationalized -- is this progress? Or nobel progress? No, rather, the microfinance industry must recognize its limitations and seek customer-oriented solutions that truly lead to Virtue for themselves and microeconmic Liberation of The Poor, rather than to IPO riches for themselves.

(19) No barriers to entry -->> there are toooo many parvenus, posers & pretenders in the microfinance "industry". The micro gold rush will continue until returns to investors fall to Zero or below Zero. That is "The Way of all Economic Flesh". Micromyopia in microfinance = the Death of Vision and horse blinders issued to all those in the deep debt micro rut from Dhaka. Hence, they never even see the walls entombing their careers -- and souls.

(20) Micro hero worship, combined with insurmountable Macro Economic Trends during the Terrible Teens (2013-2019), will cause end-stage Microsclerosis, Microossification, Microeconomic dyslipidemia and terminal Micronecrosis in the field of debt-based microfinance that will continue to reduce micro innovation and micro-financial returns towards Zero.

Globally & warmly yours,

David A. Palella

The Robin Hood of Microfinance

San Diego, California
cell: 619-787-5767
email (backup):

The "Micro" Revolutions Institute(SM) Established by Carbon Manna

Carbon Manna announces The Micro Sustainability Prizes(SM)

I will be/was a speaker or keynote speaker at:

2nd Kenya Diaspora Int'l Conference & Investment Forum

20-22 August 2009, Atlanta, GA


"Microfinance for Institutional Investors"

21-22 Sept. 2009, Washington, DC


"Micro Financial Services World"

[ organized by Hanson Wade ]

11-12 May 2010, Amsterdam City Centre, The Netherlands


4th Microfinance Investment Summit

06-07 October 2010, Central London


2nd Annual Investment & Innovation In Microfinance:

Widening the impact of Microfinance through a commitment to
innovative microfinance product development

26-27 October 2010, Washington, DC

[ organized by Hanson Wade ]


Wednesday, August 4, 2010

Palella's 10 Laws, Corollaries & Predictions for the field of MicroFinance published on Twitter


Palella's 10 Laws, Corollaries and Predictions for the field of MicroFinance were published 03 August 2010 on Twitter. The 10 visionary, sardonic, tongue-in-cheek tweets are:

(1) MFIs (micro finance "institutions") will proliferate worldwide until Micro Investment Vehicle (MIV) returns decline asymptotically to zero

(2) The doubling time of the number of Micro Finance Institutions (MFIs) worldwide will decline until MFI investment returns fall below Zero

(3) Micro Finance Institutions (MFIs) are particularly vulnerable to global Black Swan events that could & will destroy their business models

(4) Microfinance Investment Vehicles (MIVs) that do not hedge currency risk will be devastated by a collapse of the U.S. dollar & Euro in 2011+

(5) Developing world economies and MFIs (Micro Finance Institutions) that serve them will be bankrupted by US$100++ per barrel oil in 2011+

(6) The business models of Micro Finance Institutions (MFIs) must be adapted to take into account imminent debasement of the U.S.$ and the Euro

(7) Credit Default Swaps on MIVs (Microfinance Investment Vehicles) and MIV-backed Securities will spawn a new micro Bear Stearns-like calamity

(8) Microfinance loans expand to deplete the capital available, in spite of country & political risks and the creditworthiness of borrowers

(9) Microfinance "professionals" worldwide will inflate bubbles in their field that pop, sadly, leading to a "Lost Micro Decade" of poor returns

(10) And #10 ! - Sustainable Micro PROFIT sharing & Micro Savings, as well as Micro EQUITY investments, are the Future of the microfinance field



Remember: "History does not repeat itself, but it does rhyme."

Respectfully submitted for debate by:

David A. Palella

"The Robin Hood of Microfinance"

The "Micro" Revolutions Institute(SM) Established by Carbon Manna

Carbon Manna announces The Micro Sustainability Prizes(SM)