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by nrub
4439 days ago
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Serious question here. Is microfinance a good thing? What do we know about how it affects the borrowers? Most of the things I have read have been from a lenders perspective. About profit, and investment. Is that really the goal? |
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"On current evidence, the best estimate of the average impact of microcredit on the poverty of clients is zero"
http://content.time.com/time/world/article/0,8599,2103831,00...
Needless to say the debate rages on. The Zidisha discussion detracts from this central point, but on valid grounds. To some extent the shortfalls of microfinance may be due to the high interest rates charged, the restrictive loan conditions, the profit motivation, the aggressive intermediating MFIs etc., some of which Zidisha addresses. However, if you read the work of Milford Bateman, for example, he raises more fundamental questions about microfinance. In the P2P space profit is not really an option, and in Zidisha's case it is debatable whether one can even break-even. But look at the higher levels, the profits accumulating to Accion in the IPO of Compartamos; the millions made in the IPO of SKS, or at some of the microfinance investment funds - these are the big boys, and at that level yes, there are vast profits to be made. Motivation is a hard thing to prove, but you are right to suggest that profit has come to play an unhealthy role in the debate. The sector is extremely opaque, transparency is rare, there are rampant conflicts of interest and ill-aligned incentives. It is largely unregulated in practice, despite endless window-dressing to the contrary. And when some new start-up promotes microloans for poor people to connect their houses to the drinking water supply, as sensible and this might superficially seem, isn't this a public good that the government should provide?
Reading the standard microfinance mantra one could be forgiven for concluding that all the world's problems can be solved with loans, and that profit maximisation is the best structure to arrange this. We are familiar with the theory, but the evidence is sorely lacking.