A New York Times news analysis of “microcredit” in Bangladesh subtly debunks the main myths of the movement: 1) that micro-lenders have discovered entrepreneurial opportunities that regular banks and financial institutions have overlooked because of a bias against the poor, 2) that microlending is a market-sustained sector as versus one massively subsidized by governments and non-profits, and 3) that microlending has proven to be an unmitigated success. Choice passages: “Since 1988, the United States Congress has appropriated $2 billion for such programs”; “But there are still no stringent evaluations of microcredit programs generally viewed as credible by experts”; “the World Bank, the largest provider of microfinance funds…”
The greatest myth of the movement is the idea that conventional banks have overlooked massive profit opportunities that would otherwise present themselves from lending to the very poor in the developing world. Even after a decade of unrelenting propaganda about the glories of microcredit, we are supposed to believe that conventional banks still don’t get it: there are profits to be had but the big banks just won’t touch them.
The most overlooked aspect of the movement is its coercive element as seen in the 16 Decisions that the Grameen Bank imposes on its borrowers. Looks Maoist to me. More on this here. A google of doubts about microcredit turns up many revealing comments.
{ 4 comments }
I was at Fat City today – McDonald’s – and someone left the Times on the booth I was sitting in. I instantly zeroed in on the microcredit story. I was hoping that perhaps the Mises site would proffer more elucidation, and lo, here it has. This isn’t the first time. Thanks, Mr. Tucker.
The cases shown (especially that of the cult-like Grameen Bank “decisions”) are very one-sided. Microcredit arrangements, in the Third World or on a private basis in the U.S. and other G8 nations, represent an outstanding opportunity for both the lender and the borrower: the lender having an opportunity for a rate of return usually well in excess of the market rate, and the borrower having access not only to capital which otherwise would not in his lifetime have been made available due to external factors, but also gaining the economic advantage of equity in his venture and the pride of purpose of fulfillment of the entreprenuerial imperative.
Pel.
Thank you for addressing this important issue. Microfinance is an emerging industry, and while still often dependent on subsidies and social engineering, etc. like Grameen, some very protable micro-banks are emerging in many parts of the world. We at http://www.microcapital.org report specifically on investment in microfinance. Major global investment banks are getting involved for profit motive, believe it or not, we report their investments everyday. While the legacy of microcredit is not free market, the future very well maybe. Thank you, David Satterthwaite.
David, thanks for your comments but two questions remain about microcredit. 1) If these borrowers are such great credit risks who achieve so many magnificent things with the money they are given by government-backed lending services, why have conventional banks overlooked them even in the face of unrelenting propaganda from NGOs and media outlets? Is microcredit dependent on some far-flung theory of market failure? 2) how is the whole microcredit movement different from any other money-crank theory that what communities need is not capital, savings, and freedom but paper-ticket entitlements?
Comments on this entry are closed.