With the recent Nobel prize, and the following PBS specials on the topic, the promise of “microcredit” is raised as a way to solve the world’s problem of poverty, one home crafter at a time.
The premise is simple. Loan a few impoverished people, initially mainly women in Bangladesh, small sums of money. On the order of $75. With this they will buy bootstraps to lift themselves out of poverty. To buy enough raw materials to make bars of soap.
These loans were, I think I recall, 95% repaid with interest, despite the applicants having a credit rating of zero. Some loans to homeless beggars were to buy wholesale goods and sell them door to door.
Now these banks have recouped enough that they have billion dollar balances.
This sounds like fiction, but they didn’t win the Nobel in that category.
While they were building those microbanks, the International Monetary Fund was spending billions with the goal of helping the poor, but reports poverty increasing.
I’m not sure how to phrase this as a question, but I find the situation confounding.
Anyone have more clarified thoughts on this topic?
Yes! This is what I mean by confounding.
A quote from that article:
“. First is the idea that poor should be self-employed rather than work for wages. That is contrary to the whole history of successful economic development.
. Second is the idea that loans are the main financial service needed by the poor, whereas they really need savings and insurance.
.Third is the idea that credit is what builds enterprise, whereas the truth is that entrepreneurship and management are more important.
. Fourth is the idea that the non-poor don’t need credit, whereas the truth is revealed in market-based banking: higher incomes can handle higher debt.
. Fifth is the idea that microcredit institutions can become self-sustaining, whereas all experience shows that new enterprises in poor areas that are built on credit alone rarely emerge from dependency.”
It seems that the hype exceeds the reality.
Microcredit is fine, if it acknowledges that it is not completely self supporting.
There is nothing wrong with government subsidies, and in fact most all large corporations benefit from them openly. What is odd is to hide the government and private support to create a myth of independence. Reality is seldom well served by myth.
What bothers me is the fragile nature of this microloan.
As Charles Dickens famously said:
“Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”~ David Copperfield (1850)
The twenty pounds is irrelevant. Essentially all happiness rests on that sixpence.
What if the difference is not in the loan, but in the advice the microbank gives to grow vegetables at home? What if the main difference is in their directions to dig a latrine, and save on human suffering?
If you hand Dicken’s debtor sixpence will he be happy for a year?
My understanding is that the microcredit lenders give the borrowers some rudimentary training - I heard a long interview with an Australian guy who set up a major operation, and it sounded as if there was a bit more to it than straight lending.
I’m not sure that I trust that first article for an impartial, clear-headed economic analysis of the micro-loan structure. It’s self contradictory, both criticizing the microloan program for insisting that poor people now become business owners instead of wage-earers but also criticizing the owner of the first micro-loan venture for operating another highly profitable telecom venture that depends upon the “exploitation” of wage-earners.
From the front page of that website regarding the American history of war, they blame the start of the Civil War, World War I, and World War II on Lincoln, McKinley, and Roosevelt respectively. Let’s say that they have a tendency towards some of the alterate economic analysis and I have some difficulty in simply trusting this institute implicitly for clear-headed economic analysis:
“In so many instances, the president provoked the other side into firing the first shot so it was made to appear that the war was started by America’s alleged enemy. Not only did Polk, Lincoln, McKinley, and Wilson do this, but also later, Roosevelt would do it with Pearl Harbor and”
threemae
Yes, I caught the strange agenda they seem to have. I’m quite sure they do not want the poor to succeed. However, if the proponents of microcredit never mention the downsides and setbacks, they are misrepresenting the prospects for spreading this system.
I distrust credit among the poor just I distrust the current credit card culture of the middle class and the deep national debt of the country.
If you give people a boost and push them over a threshold into a larger world, one of repayment and freedom from debt, that is good. If the theshold you push them over is not the front doorsill, but the one to the basement via a spiral staircase of debt, then that is bad.
And over-inflated projections always seem to lead to bursting economic bubbles.
I’m glad you said that last sentence. Way too many look at the world through their spectrum and say the world IS instead of acknowledging there might be another way.
You know, if a man, or a bank decided to just give folks small amounts of money, no one would consider it potentially disruptive of the status quo, either favorable, or unfavorable. They might find it foolish, or deluded, but not a threat to society, or a potential boon to it either.
Loan means trust. Loan means believing in someone, and believing that the person is more important than the money, and more powerful, as well. That is a great deal of power in a small act of humanity. It is reasonable to believe such a thing might upset the status quo, and might do so in a way that grows, and gains power. If a small percentage of the world’s poor learn to believe in themselves, and each other, and to believe that they are more important in them selves that money, a few very large apple carts might begin to feel the rumbling.
Tris
“When I give food to the poor, they call me a saint. When I ask why the poor have no food, they call me a communist.” — Dom Helda Camara
I dunno - on the face of it, it sounds a noble idea - lend the hand-to-mouth woodcarver a small sum so that he can buy his own chisel and sharpening stone, instead of renting them from the blacksmith at a cost that eats nearly all of his profits. Great idea… except… haven’t we just shafted the blacksmith?
What I found interesting was the problem that sexism and machismo presents in countries like Mexico. The women who were getting the microcredit loans were saying that they didn’t like it that their women earned money, and they also said they had to keep the fact that they were saving money secret from their husbands because otherwise their husbands would give them no money for the household.
I think a little cultural adjustment in conjunction with the microloans is in order. As is prevalent in most societies to some degree, bigotry and ignorance are amplifying the effects of poverty.
I don’t think that microcredit helps everybody be their own boss. Some people, through talent and innovation will go farther than the rest, eventually he will become an employer. There’s always people with good ideas and no capital to put them to work. I can’t see how it can be harmful, at worst it doesn’t change anything.
Who do you think sells him the chisel and sharpening stone?
I was involved in some pro bono work for a micro-credit organization as a tax lawyer. They initially worked at a loss (they weren’t losing money on the loans (loans to groups of poor people who will collectively lose everything if they default on the loan turned out to be a great credit risk), they were losing money in overhead (administering $500 loans and sending in loan officers to teach people how to keep books and run businesses) but eventually they would turn a profit and then the question of their tax exempt status would arise. Most countries decided not to tax these micro-credit organizations as long as they weren’t expatriating funds. It does seem to work but it doesn’t fix all the problems so much as fix one problem that holds back a lot of poor people, access to capital.
Admittedly, I haven’t done my research here. It does, however, seem like a very good idea, on the face of it. It’s kind of like the “giving a man a meal or teaching him how to fish” deal- instead of just giving them a small amount of money that might pay for a few things and really not change the situation at all, they give money earmarked for helping the people start a business and become self-sufficient. Sure, it may not always work, but I think it’s a worthwhile idea that should be pursued.
My major point is that there are people with the charitable impulse that want to do things that really help. The money is not the problem. Getting people to see themselves as the solution is the problem. This idea has a chance to encourage that.
Yeah, and what about modern post-industrial societies where the blacksmiths are all starving to death? No, wait a minute, they all went and got real jobs.
You might as well complain about the lack of job options for chimney sweeps in modern America. Sometimes progress hurts some people temporarily, but eventually a nation is far better for it.