Microfinance Horizon

Author: S. Scott Gaille (Managing Director of the Sequent Group & Adjunct Professor at Rice University’s Jesse H. Jones Graduate School of Business)

Synopsis:

The “natural resource curse” is the phenomenon whereby a country that is rich in natural resources may experience less economic growth than countries lacking natural resources. This occurrence has been blamed on a variety of factors, including weak governments susceptible to corruption, the concentration of economic activity in the petroleum sector, and insufficient investment in education and human capital. Over the last few decades, efforts to combat the curse have focused on “top down” approaches that impose alternative institutions on petroleum states or otherwise police the spending of resource wealth. This paper proposes an alternative “bottoms-up” approach that diverts a small percentage of resource wealth to microfinance and educational lending programs. Similar lending institutions are active in the developing world, and additional funding from a modest royalty could mitigate aspects of the resource curse by diversifying economic activity and increasing investment in education.

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