Economist Chimes in on Bubble vs Hot Air in Indian Microcredit

The Wall Street Journal article (blogged here) asserting a microcredit bubble in India provoked a sort of response in the Economist.The article gives a good platform to Vikram Akula, the most eloquent advocate for the view that talk of bubbles is hot air, and has thoughtful quotes from Jonathan Morduch and others. I found this interesting:

Indeed, the real story of the past year may be of a regrettable slowdown in the growth of microfinance. According to ACCION International, a global network of microfinance schemes, although there are isolated pockets of frothy lending—in Bosnia and Nicaragua, for example—the microfinance industry has not been entirely immune from the credit crisis, and growth has slowed due to weaker demand and funding difficulties.The bottom line at the bottom of the pyramid is that financial services remain shockingly scarce. “I have a hard time to see how there can be a bubble when the microfinance industry still has not served 90% of its clients,” says Álvaro Rodríguez Arregui, a former chairman of ACCION and now chairman of Compartamos Banco. He estimates that there are currently 100m microfinance clients out of one billion poor people who want access to financial services.Mr Rodríguez thinks that occasional local bubbles may even be better than bubble-free growth. “It is great to have a gold rush because that is the only way to develop a competitive industry. When entrepreneurs rush into an industry, you get innovation, efficiencies, more product offerings and better pricing, with the ultimate beneficiary being the customers.” As he points out, “before the Compartamos IPO, there were 200 microfinance institutions in Mexico, today there are 800. Which is great!”