Give money to entrepreneurs in Nigeria… but be extremely careful when lending to British entrepreneurs and SMEs

Sir, Tim Harford writes about “a development program… give $50.000 to Nigerian entrepreneurs… while entrepreneurs in other countries are held back by corruption, red tape, poor roads and patchy electricity, they are also constrained by a lack of the funds needed to get their ideas off the ground.” “Development needed? Just give cash” October 17.

Great! Perhaps Harford would now do himself a favor by asking one of his many banker friends the following: When you give a £40.000 loan to an English entrepreneur how much capital does your regulator require you to hold against that loan, when compared to a similar loan to someone with an AAA credit rating?

Regulators, by means of their capital requirements based on the perceived credit risk, that risk banks already clear for with interest rates and amounts of exposure, have ordained that ex ante credit risk perceptions should have a 200% weight in banking. And of course that impedes “risky” SMEs and entrepreneurs to have fair access to bank credit, and so they are also constrained by a lack of the funds needed to get their ideas off the ground.

Mr. Harford you write here favorably of giving money to entrepreneurs while in your own homeland bank regulators are hindering banks from even lending to these. There is some sort of incongruity in the air…isn’t it? 

@PerKurowski ©