Idealizing microcredit makes it stop working
Here's an interesting article on the predatory turn taken by microcredit in India. Lending small sums of money to the very poor has become big business, and many of India's poor are finding themselves saddled with big debts they can't repay and harassed by lenders, even to the point of suicide.
The article is full of quotes from microcredit pioneer Muhammad Yunus lamenting the corporatization of the industry, and calling for a focus on helping people rather than making a profit. I think it would be interesting to explore, however, the role that the idea of microcredit as something that focuses on "people, not profit" played in creating the very problems Yunus is lamenting.
Microcredit is widely viewed as a sort of silver bullet against poverty. Microcredit quickly drew global attention because it offered a way to help the poor help themselves, and to fix poverty without requiring major structural change in society. If we simply get over the prejudice against including poor women in the circle of potential borrowers, we can solve social problems and make a profit at the same time! I suspect this way of thinking, this idealization of microcredit, has likely had two effects:
1) It has given cover to predatory lenders. The cachet of microcredit as a form of anti-poverty activism makes it easier for lenders to convince others, and themselves, that what they're doing is not preying on the poor but helping to fix social problems. People feel good about what they're doing, and are reluctant to ask tough questions, because it has become conventional wisdom that microcredit is the solution to poverty.
2) It has encouraged borrowers to get in deeper than they otherwise would have. Poor people are hearing the same rhetoric about the magic of microcredit, albeit through different channels. The idea that microcredit is empowering to women and raises people out of poverty may cloud people's ability to think pragmatically about the risks they are taking on by borrowing. Grameen Bank success stories color borrowers' judgments of any microcredit offer.
Microcredit certainly has some role to play in addressing the problems of poverty. But the idealization it has received seems likely to enable a pernicious, predatory manifestation that undercuts the very goals we're told microcredit can achieve.
The article is full of quotes from microcredit pioneer Muhammad Yunus lamenting the corporatization of the industry, and calling for a focus on helping people rather than making a profit. I think it would be interesting to explore, however, the role that the idea of microcredit as something that focuses on "people, not profit" played in creating the very problems Yunus is lamenting.
Microcredit is widely viewed as a sort of silver bullet against poverty. Microcredit quickly drew global attention because it offered a way to help the poor help themselves, and to fix poverty without requiring major structural change in society. If we simply get over the prejudice against including poor women in the circle of potential borrowers, we can solve social problems and make a profit at the same time! I suspect this way of thinking, this idealization of microcredit, has likely had two effects:
1) It has given cover to predatory lenders. The cachet of microcredit as a form of anti-poverty activism makes it easier for lenders to convince others, and themselves, that what they're doing is not preying on the poor but helping to fix social problems. People feel good about what they're doing, and are reluctant to ask tough questions, because it has become conventional wisdom that microcredit is the solution to poverty.
2) It has encouraged borrowers to get in deeper than they otherwise would have. Poor people are hearing the same rhetoric about the magic of microcredit, albeit through different channels. The idea that microcredit is empowering to women and raises people out of poverty may cloud people's ability to think pragmatically about the risks they are taking on by borrowing. Grameen Bank success stories color borrowers' judgments of any microcredit offer.
Microcredit certainly has some role to play in addressing the problems of poverty. But the idealization it has received seems likely to enable a pernicious, predatory manifestation that undercuts the very goals we're told microcredit can achieve.
1 Comments:
As the only one making loans, Grameen bank thus has perfect information about the indebtedness and prior repayment success of its clients. With two lenders, borrowers can use one bank to pay the other, hiding what would otherwise become bad debts.
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