[...]Critiquing microfinance, Part I | DefeatPoverty.com[...]…

Poverty is by nature a relative term/condition. I do think though that the highest global priority is seeing people step out of extreme or abject poverty. Again, probably lots of definitions, but common definition is providing a level of stability (water, food, shelter, clothing, medical help, education, etc.) combined with some level of hope for further advancement … if not for themselves, then at least for their children. I have personally seen how microfinance has helped many people in this way.

On the “everyone’s not an entrepreneur” topic … I agree that there are certainly only a minority of people who are, let’s call it, super-entrepreneurs … capable of building a large scale/impact business. This hardly though takes away from the benefits that having some capital to combine with your own labor benefits almost everyone. While microfinance is by no means the all-in-one solution for poverty, it is a very strong contributor.

On “access to markets, infrastructure, etc.”, I agree that ultimately these are important and I’ve written about this previously.

On interest rates … frankly, I’ve seen people in places like Mexico more than happy to pay interest rates for microcredit loans at 80%+ APR. I struggled (and struggle) to feel like this is not unfair/exploitive (I’ve written about this in another post). Yet, it is not uncommon for these borrowers to earn 200%+ ROI on these loans with their businesses. In places like India, where borrowers are paying 25-30% interest, they are paying substantially below the 60%+ that the middleclass are paying on outstanding credit card balances. And most poor borrowers are earning 100-150%+ ROI in their microbusinesses.

On alcohol … I have seen how it is so destructive to families in the slums of major Indian cities especially impacting children and women. While I have seen the occasional negative impact of someone taking a loan that they could not repay, well-managed microfinance cannot be compared to offering narcotics or alcohol to the poor.

I completely disagree with your statements: (a) that microfinance doesn’t lift any poor people out poverty (it does); and (b) your comparison of sustainable (commercial) provision of microfinance as equivalent in benefit to selling alcohol to the poor. Both of these statements are ridiculous with no basis in fact.

I think that there are indeed different approaches to delivering microfinance which have merit. In some cases, delivering microfinance with other kinds of products/services makes a lot of sense and I’ve seen this work. I’ve also seen very passionate (and effective and pro-poor) social entrepreneurs argue that packaging bundled subsidized services is the wrong approach.

I’m glad that your organization has found a model that seems to be working to reduce poverty in rural Africa. Keep up the good work as this is a greatly underserved market! Please though pause before striking out at others who are attempting (some failing/some succeeding) at other promising approaches.

There is nothing wrong about it, let’s just reduce our expectations. The country which achieved the most impressive reduction in its poverty is China and microfinance did not seem to play a sifgnificant role in the process. With all my respect Bangladesh is hardly on anybody list of success stories so far.

From my perspective, supplying poor people with credit on a commercial basis cannot be considered provision of social good any more than selling them any other products (such as alcohol).

But I do believe in a power of microfinance as an empowerment tool when it is implemented as part of an integrated strategy, offers extensive training and makes an emphasis on savings rather than just credit (some information about our approach is available here: http://www.thp.org/awffi/index.html)

Warmest regards
KT