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Mutual Funds in Asia Sarah McBride (2001), "Mutual Funds Are Gaining Currency in Asia," Wall Street Journal, February 6, reports that while few savers place their wealth in mutual funds, that seems to be changing. Only 8 percent of people in Hong Kong invest in any mutual funds, 10 percent in Japan, and 14 percent in Singapore, even though per capita incomes in these places are comparable to the U.S. In Asia most savings still move straight into savings accounts at long-established banks. One problem has been the high costs of mutual funds in Asia. There is usually a 5 percent initial sales charge, and management fees are around 1.5 percent. Compare this to the U.S., where nearly one third of all funds charge no sales fee and management fees average 1.3 percent. But fees may be coming down: in Taiwan sales fees have already declined to 3 percent. Citigroup Inc., one of Asia's largest mutual fund distributors, is planning to launch a group of funds with no sales fee. Perhaps the greatest incentive for further growth of mutual funds is the inclusion of many mutual funds among the options for the contributions to the privatized mandatory individual pension plans in Singapore and Hong Kong. Microlending Continues to Spread The quiet revolution of microfinance continues to spread, and articles frequently appear describing microlending in one country or another. The Economist (2001), "Africa's Women Go to Work," January 11, described the growth of microlending in Africa. The examples given in the article are the usual. A small restaurant in Ouagadougou that consists of poles topped by the thatched roof and offers little |
more than cooked rice and a small bar in Kampala that brews
millet beer in old oil drums "with the Shell logo still visible on the side." These businesses
required small amounts of capital, which were provided by microlenders at near-market rates;
without the loans many such small businesses would have trouble getting started. The Economist's article describes another interesting phenomenon: "As microfinance has globalized, it has run into local problems. Not all poor communities are as tight-knit as those in rural Bangladesh [recall the Grameen Bank from Case Study 8-4]. The urban poor, being more mobile, do not always know their neighbors well enough to act as guarantors for them. In the shanty towns of Africa and Latin America, something called ‘Stepped lending' often works better. A would-be borrower puts up a little money of her own. The microfinancier lends her roughly the same amount again. If she repays promptly, she can raise a larger loan. The better her credit record becomes, the more she can borrow." The article also mentions the lack of profitability of most microlenders. According to Accion International, an organization active in promoting microfinance in Latin America, perhaps 50 of the world's 7,000-plus microlenders are truly profitable and cover their operating and financial costs without outside assistance. Even more worrisome is the impact of AIDS on microlending in Africa. Many borrowers become ill and eventually die, and no lender can survive very long in an environment where borrowers simply become unable to repay loans. The difficulty of completing intertemporal transactions when there is a high probability of early death reminds us again of the complex interrelationship between growth and saving/investment. |