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Microfinance: The Next Bubble?
Margolis, M.
The international financial crisis has destroyed many certainties, but one of the touted survivors is the old saw that small is beautiful. Sure, no one is flogging mansions to paupers anymore. But microfinance is still flourishing, and even expanding. Ever since Bangladeshi economist Muhammad Yunus started handing out small loans to the poor in 1974, the idea that a little credit can help peasants and simple villagers climb out of poverty has swept the map.
Civic groups, the World Bank, even commercial lenders have gotten into the act, capturing millions of barefoot clients across the developing world. Today microfinance is a global growth industry. It reaped Yunus the Nobel prize. Even the developed world is catching on. Grameen Bank, the Bangladesh-based microlender Yunus founded, opened a branch in Queens, New York, last year and plans to unveil another in Omaha, Nebraska. Take that, Citicorp.
But hold that confetti. Two US economists - David Roodman, of the Center for Global Development, and Jonathan Morduch, of New York University - recently reran the numbers on microfinance’s heralded miracles and came away with a much murkier picture. After reviewing seminal studies on microcredit in Bangladesh, they concluded in a working paper that while microcredit is not hurting people, there is also no hard evidence that it is helping them much.
| Comments (5) | Submit a Comment |
| 07 Jul 2009 | |||
| economics on paper or in the classroom is different from ground reality economics | |||
| Working with theories, formulae & claculations is a far different proposition than allowing our naked eyes to witness the benefit or otherwise of any strategy, plan of action, etc.. As prof. Yunus has himself stated in his biography, "economics taught in the classroom is not the real stuff economics." Surely it has to be seen to be working with a hands-on approach, which is what Prof. Yunus' Grameen Trust has done in Bangladesh. Let the American economists work on their theories - microcredit is definitely here to stay. It has been shown to work for Americans in America! | |||
| savita vaidya India |
| 07 Jul 2009 | |||
| Microfinance: A True Lease of Life to the Poor | |||
| The Conclusions of Roodman and Morduch are absurd! I think they missed out some thing in this study. Microloans are given to people who are actually already struggling, thus it faciliates them to survive; i.e., enhancing their ability to improve the quantity and quality of their meals, send their children to school, learn to work harder, have financial discipline as a result of the pressure of the loan and above all be in position to save are few of the very important achievements in their own right. I feel the two need to revise the tools and variables they used in the study, then they can see the tremendeous change brought about among the poor by microfinance. | |||
| Paschal MANDHAWUN ENCOT Uganda |
| 06 Jul 2009 | |||
| Permanent impact is not relevant | |||
| If every year, even 5% of the people escape poverty for five years, thanks to Microfinance, and then let say they fall back into it, even then its worth it. We're talking about 5% of 3000 million which is 150 million. If 150 million get to experience, even briefly, what the top 1 billion are experience daily (and still some of these are committing sucide), its something. In the last two days at Burkina (Ouagadougou), I've met more than a dozen artisan/microentrepreneurs and asked them questions. When you meet people approaching fifty telling you their life is a total failure (on a 5 point scale going from that to total success), you wonder what you can do. Not even one mentioned total success. Nobody among the fifteen I met had heard of microfinance. They would like to know how to get it. They have dreams. Besides charity and microfinance, what else is there? How many public sector jobs can you create without the whole State being in debt of dependent on foreign aid? | |||
| Arvind Ashta Burgundy School of Business (Groupe ESC Dijon-Bourgogne) France |
| 04 Jul 2009 | |||
| Sure, Microfinance is helping | |||
| In many places dependence on local money lenders (who charged astronomical rates) is very much reduced. Now poor do have some MFIs to lend them at a reasonable rate with easy terms of repayment. Perhaps the rags to riches stories may not be many, but Microfinance will stay. | |||
| Sreenivasan Gopalakrishnan India |
| 03 Jul 2009 | |||
| IT DEPENDS | |||
| Whether microfinance will be the next bubble depends on the administration of microfinance policies, principles and processes as they are applied by the practictioners. A sound microfinance policy is one that provides opportunities for the unbanked poor to develop a savings culture on which access to microcredits can be developed. Without an underlining savings plan, flaggrant distribution of microcredit which ignores basic risk management issue will definitely burst the bubble. But I think that many practictioners are getting it right and whether the bubble burst or not, the development and growth of microfinance activities all over the world is a welcome development that has significant positive impact on the socio economic life of the people. | |||
| Rogers Augustine Nwoke HASAL Microfinance Bank Ltd Nigeria |
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Posted: 01 Jul 2009
Source: Newsweek
Originally Published: 29 Jun 2009
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