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Microcredit examined: stimulates enterprise but doesn't help poverty

30 points by lemming 15y ago

danboarder 15y ago
This title makes interesting conclusion as it seems contradictory. Stimulating enterprise in a developing region generally means more economic activity including more jobs, which means people are working rather than not working - and I would consider this as a direct impact on poverty in a region. Beyond CGAP's work, I think one should consider microcredit as one tool in a suite known as "microfinance", which includes savings programs and economic literacy education, among other services. For a global summary check out the Microcredit Summit Campaign's 2012 report here: http://www.microcreditsummit.org/state_of_the_campaign_report/ http://www.microcreditsummit.org/state_of_the_campaign_repor...
- kijin 15y ago
  Here's a link to an article that was published about a year ago. It describes several reasons why microcredit might not alleviate poverty despite encouraging enterprise, such as the fact that most families must spend a large part of their loan on servicing other debts, medical emergencies, etc. There have also been rogue microcredit agencies that operated like loan sharks. The article proposes savings and insurance programs to augment loans -- a more comprehensive "microfinancing" scheme, as you proposed. > In fact, although many microloans did go towards starting businesses, a huge proportion was spent on simply getting by and surviving in poverty. The villagers used the loans to pay off other debts, meet medical fees or fund their children's weddings. http://www.independent.co.uk/news/world/asia/why-the-dream-of-microfinance-is-turning-sour-2280814.html http://www.independent.co.uk/news/world/asia/why-the-dream-o...
- DanBC 15y ago
  For more reporting about the disadvantages (and sometimes the advantages) of microfinance the IRIN site has plenty. (http://www.irinnews.org/AdvancedSearchResults.aspx?KW=microfinance http://www.irinnews.org/AdvancedSearchResults.aspx?KW=microf...) Micro financing thought to be neutral: (http://www.irinnews.org/Report/95067/Development-Microfinance-possibilities-and-limitations http://www.irinnews.org/Report/95067/Development-Microfinanc...) Some microfinancing is corrupt: (http://www.irinnews.org/Report/82247/BENIN-Corrupt-microfinance-institutions-profit-from-poorest http://www.irinnews.org/Report/82247/BENIN-Corrupt-microfina...)
greghinch 15y ago
This just in: centuries old economic and social inequity NOT immediately solved by well intentioned startups! Hipster nerds decry the idea as a failure for not generating a billion dollar valuation after 2 years. Seriously, poverty in these regions is the result of so many factors, stimulating enterprise is going to be helpful but it may take a generation or more to see the effect.
- Dylanlacey 15y ago
  Perhaps this would be a good point to discuss how to keep the idea "Sexy" enough to have payoff. I agree with you, incidentally, but if you want to have lasting social effect AND it's going to take time, there needs to be something to keep people trying until a visible payoff is available as "proof".
yaix 15y ago
There are thousands of ways to implement Microcredit, and some implementations have been in ways that were already proven to not work very well. But to make money. Yunnus/Grameen had some good ideas (read his book) that are not really about the money they give out to poor people. The money is only a way to get the poor people to come to the meetings regularly and follow certain important principles, like "all my children go to school" or "we eat every day three meals" or "we will try to build a stable home made of bricks/tin roof" etc. Seems trivial, but those are important steps. Not to mention the fact that many Grameen credits are given to groups that mutually guarantee their credit! If one person fails to pay back, the others have to pay back for this person. People learn by that to work together and to trust each other (building social capital, the very basis of every lasting economic development, read "F.Fukuyama, Trust - Social Virtues and the Creation of Prosperity" for example). Just handing out little credits will of course not help a lot, but in some situations it may help, so its worthwhile anyway. A next important step would be to make laws in all countries that banks /have to/ give one free savings accounts to everybody. No credit account of course, but a right to have a bank account would be an important and easy to implement step.

30 points by lemming 15y ago

This title makes interesting conclusion as it seems contradictory. Stimulating enterprise in a developing region generally means more economic activity including more jobs, which means people are working rather than not working - and I would consider this as a direct impact on poverty in a region. Beyond CGAP's work, I think one should consider microcredit as one tool in a suite known as "microfinance", which includes savings programs and economic literacy education, among other services. For a global summary check out the Microcredit Summit Campaign's 2012 report here: http://www.microcreditsummit.org/state_of_the_campaign_report/ http://www.microcreditsummit.org/state_of_the_campaign_repor...

kijin 15y ago
Here's a link to an article that was published about a year ago. It describes several reasons why microcredit might not alleviate poverty despite encouraging enterprise, such as the fact that most families must spend a large part of their loan on servicing other debts, medical emergencies, etc. There have also been rogue microcredit agencies that operated like loan sharks. The article proposes savings and insurance programs to augment loans -- a more comprehensive "microfinancing" scheme, as you proposed. > In fact, although many microloans did go towards starting businesses, a huge proportion was spent on simply getting by and surviving in poverty. The villagers used the loans to pay off other debts, meet medical fees or fund their children's weddings. http://www.independent.co.uk/news/world/asia/why-the-dream-of-microfinance-is-turning-sour-2280814.html http://www.independent.co.uk/news/world/asia/why-the-dream-o...
DanBC 15y ago
For more reporting about the disadvantages (and sometimes the advantages) of microfinance the IRIN site has plenty. (http://www.irinnews.org/AdvancedSearchResults.aspx?KW=microfinance http://www.irinnews.org/AdvancedSearchResults.aspx?KW=microf...) Micro financing thought to be neutral: (http://www.irinnews.org/Report/95067/Development-Microfinance-possibilities-and-limitations http://www.irinnews.org/Report/95067/Development-Microfinanc...) Some microfinancing is corrupt: (http://www.irinnews.org/Report/82247/BENIN-Corrupt-microfinance-institutions-profit-from-poorest http://www.irinnews.org/Report/82247/BENIN-Corrupt-microfina...)

greghinch 15y ago

This just in: centuries old economic and social inequity NOT immediately solved by well intentioned startups! Hipster nerds decry the idea as a failure for not generating a billion dollar valuation after 2 years. Seriously, poverty in these regions is the result of so many factors, stimulating enterprise is going to be helpful but it may take a generation or more to see the effect.

Dylanlacey 15y ago
Perhaps this would be a good point to discuss how to keep the idea "Sexy" enough to have payoff. I agree with you, incidentally, but if you want to have lasting social effect AND it's going to take time, there needs to be something to keep people trying until a visible payoff is available as "proof".

yaix 15y ago

There are thousands of ways to implement Microcredit, and some implementations have been in ways that were already proven to not work very well. But to make money. Yunnus/Grameen had some good ideas (read his book) that are not really about the money they give out to poor people. The money is only a way to get the poor people to come to the meetings regularly and follow certain important principles, like "all my children go to school" or "we eat every day three meals" or "we will try to build a stable home made of bricks/tin roof" etc. Seems trivial, but those are important steps. Not to mention the fact that many Grameen credits are given to groups that mutually guarantee their credit! If one person fails to pay back, the others have to pay back for this person. People learn by that to work together and to trust each other (building social capital, the very basis of every lasting economic development, read "F.Fukuyama, Trust - Social Virtues and the Creation of Prosperity" for example). Just handing out little credits will of course not help a lot, but in some situations it may help, so its worthwhile anyway. A next important step would be to make laws in all countries that banks /have to/ give one free savings accounts to everybody. No credit account of course, but a right to have a bank account would be an important and easy to implement step.