Contours of a Crisis
I’m still in Japan, this time on a bus passing by Yokohama right now. Headed home today.
I spent a large portion of this autumn in Asia. It helped me step out a bit from my situation and get some perspective. From over here, my life and my country look fractured, but full of promise.
Last night I was invited by a Tokyo entrepreneur friend to a small Kiva hang out. His bar has become kind of a cult locale for American entrepreneurs doing business in Tokyo. There are famous folks signatures all over the door, a couple DJ’s spinning records and video on the wall. The place could hold about 30 people tops. Everything in Japan is *so hip*.
In addition to nightclubs, my friend has a "side business" on SecondLife. He owns an avatar prostitute which operates automatically on a script 24/7. The avatar needs no maintenance and just goes about her business without manual operation. It charges actual money for the delivery of its virtual services and gets paid — paid well. Apparently, the other avatars line up for this kind of thing.
Earlier this year, the business was bringing in thousands of actual dollars per month. Despite what you may think of the morality and decency of the business, its a pretty efficient money making scheme. That is, until recently, when the profits took a steep dive.
My friend mentioned business has almost completely dried up lately for the avatar. "Why do you think?" I prodded. "Subprime", he said without hesitating. That ended the story. He had to lay her off.
A Japanese robo-prostitute avatar, laid off because of american mortgage foreclosures and the ensuing fallout. If this doesn’t prove we are all interconnected in this world, nothing will.
In Cambodia, there has been a slowdown in exports of textiles. The textile industry is one of the main sources of employment so this is having a big impact on the economy. Garment factories are in danger of shutting down — possibly creating thousands of new textile entrepreneurs.
The existing set of independent silk weavers and seamstresses are making less. MFIs are reducing the maximum sizes of the loans they offer to individuals in order to reduce their exposure to the risk of falling exports.
In order to grow, MFIs access pools of debt and equity from a variety of sources. International MF funds help with this, so do local banks, so does Kiva and the hundreds of thousands of individual international lenders that make Kiva what it is.
My guess is that both domestic and international wholesale institutional lending to MFIs will significantly tighten up in the year to come, if not already. This will happen despite the fact that MFIs across the world pay back very dependably — because the poor pay back dependably.
Will Kiva tighten just the same? It’s too early to tell. We seemed immune to the trend for most of 2008. Our loan volume is still growing steadily despite seasonal ups and downs. However, if you look a little closer, you can see a potentially alarming trend. *New money* has fallen lately. Relending has taken over as the majority of lending. Check out this chart below, the blue area represents new cash deposits per month at Kiva. The green is total lending:
Is the economy the cause of this? Or is it something else?