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Unsecured debt, in particular the subprime loan market as associated currently with the housing mess, is getting a lot of negative press these days. However, borrowers who invest in such debt might be the greatest contributors to the economy over time.

This particularly is the case in emerging markets. Muhammad Yunus, a Bangladeshi professor, founded Grameen, a bank to provide microcredit to entrepreneurs in many of the least developed economies around the world. Grameen, which opened its doors thirty years ago, has made microloans to seven million borrows, with 97% of them being women who were rejected by the local banks, according to Skip Kaltenheuser in Barron's Other Voices column over the weekend. The loan-repayment rate stands at 99% with total disbursements exceeding $6 billion. The average loan is $130. Yunus won the Nobel Peace Prize for providing credit to those who formerly had to rely on unsavory loan sharks for capital.

For those who do not recall, the booming U.S. and global economy which began in the early 1980s was aided by the deregulation of U.S. credit markets and creation of new credit markets such as the high-yield debt and unsecured credit card markets. Unsecured debt was the primary vehicle to re-allocate assets into the hands of managers who utilize those assets more efficiently. Unsecured credit cards helped finance many entrepreneurs when few banks would lend to them.

As the subprime mortgage market goes into the dumper, remember there have been substantially more positives from the development of the unsecured credit markets than negatives, whether it is in a mature economy like the U.S. or an emerging market like Bangladesh.

The positive side of unsecured debt originally appeared on BloggingStocks on Mon, 09 Jul 2007 15:28:00 EST. Please see our terms for use of feeds.

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