Source: Foreign Policy
February 1, 2012
By: David Roodman
Small loans probably won't lift people out of poverty or empower women. But that doesn't mean they're useless.
"Microcredit Is a Proven Weapon Against Poverty."
Alas, no. Microcredit, the strategy of lending sums as small as $100 to help poor people start tiny businesses, has won acclaim like few other recent concepts in economic development, winning plaudits from political leaders, titans of industry, and celebrities. Bill Clinton and Tony Blair love microcredit. So do Queen Rania and Natalie Portman. More than 100 million people in more than 100 countries have received microloans, thanks in no small part to billions of dollars from foreign aid agencies, philanthropists, and "social investors" looking to do well while doing good. In 2006, microcredit pioneer Muhammad Yunus and the Grameen Bank he founded in Bangladesh shared the Nobel Peace Prize. Microcredit has gained a global reputation for lifting people out of poverty and empowering women.
Read more: Think Again: Microfinance - By David Roodman Foreign Policy
February 1, 2012
By: David Roodman
Small loans probably won't lift people out of poverty or empower women. But that doesn't mean they're useless.
"Microcredit Is a Proven Weapon Against Poverty."
Alas, no. Microcredit, the strategy of lending sums as small as $100 to help poor people start tiny businesses, has won acclaim like few other recent concepts in economic development, winning plaudits from political leaders, titans of industry, and celebrities. Bill Clinton and Tony Blair love microcredit. So do Queen Rania and Natalie Portman. More than 100 million people in more than 100 countries have received microloans, thanks in no small part to billions of dollars from foreign aid agencies, philanthropists, and "social investors" looking to do well while doing good. In 2006, microcredit pioneer Muhammad Yunus and the Grameen Bank he founded in Bangladesh shared the Nobel Peace Prize. Microcredit has gained a global reputation for lifting people out of poverty and empowering women.
What has made so many so sure of microcredit? The ideas are powerful: a blend of self-reliance and liberation that appeals across the political spectrum. Microfinance promoters told compelling stories of individual men and women whose successes embodied those ideas, and papers in prestigious journals gave convincing evidence that the loans, especially when they went to women, made them less poor.
But the old studies are now discredited. Newer, better ones have found that microloans rarely make an impact on bottom-line indicators of poverty, such as how much a household spends each month and whether its children are in school.
