In fact, the concept of the homo economicus, i.e., completely rational agents striving only to maximize their utility, was introduced by John Stuart Mill in the mid-nineteenth century, and since then it’s been a mainstay in orthodox economic theory. As a completely rational being, Data often struggles to understand the strange behavior of his human crewmates.Īccording to dominant theories in finance, every investor can be seen as Data. If you’ve ever seen Star Trek, then you surely remember the unforgettable android, Lieutenant Commander Data.
how one company doubled its net capital by abandoning certain market principles.what Romanesco broccoli and market trends have in common and.how conventional economic theories view us all as Lieutenant Commander Data.In this summary of The Misbehavior of Markets by Benoit Mandelbrot and Richard L. Luckily, there is an alternative approach, fractal geometry, that can be used to look for ways to reckon with the inherently rough nature of changes in the market, rather than viewing these changes as anomalies or trying to force them into neat and convenient models. We only have to look back as far as the financial crisis of 2008 to know that markets are far more irregular and volatile than our current economic models would otherwise claim. Yet, all around the world, those same financial markets occasionally undergo massive collapse that stays completely hidden from mainstream analysts until it’s too late. The greed of some microfinance firms is clearly reflected in their huge interest rates, as a result of which microfinance appears to be a camouflage for the pawn brokers.Mainstream financial theories offer precise, comprehensive and self-contained models of financial markets. Lately a couple of microfinance firms have plans to raise more than Rs 300 crores. These numbers need to be taken with a pinch of salt due to the absence of regulations and regulatory rules in the microfinance sector. Further the customer base covered by microfinance is growing at a Compounded Annual Growth Rate (CAGR) of about 43%. The following diagram from the wikipedia entry gives a comprehensive summary of the various goals achieved by a family of microfinance products ranging from insurance plans to long term loans.Īccording to KPOs such as S.G Analytics, currently about 250 million people in India which includes small and marginal farmers need about 52 billion USD worth of microfinance credit. The wikipedia entry on microfinance is nice read. Further, the economic benefits of microfinance has been highlighted by many financial analysts. Many economists consider microfinance as one of the most worthy solutions for the above problems. This type of borrowing coupled with information asymmetry and the greed of the lenders is a source of malice in poor nations. The absence collaterals have forced the poor to borrow from relatives and local money lenders. In the past the only source of income for the poor were the pawnbrokers and money lenders. A classical example is the drought of 1974 that laid the foundation of Microfinance. The dark clouds of tough times have always laid the seeds of innovation.
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