Microloans under Fire

January 10, 2011 at 11:02 PM

Microloans – loans of relatively low amounts to third-world indigents starting or expanding a business – were long the toast of the philanthropic world. The innovative approach won the backing of President Clinton, Prime Minister Tony Blair, and many others, and won leading microlender Grameen Bank a Nobel Peace Prize in 2006.

Now the practice is under fire in several countries, the New York Times reports; Grameen is under investigation in Bangladesh and activists in Nicaragua and elsewhere are urging people not to repay them.

Most borrowers do not appear to be climbing out of poverty, and a sizable minority is getting trapped in a spiral of debt, according to studies and analysts.

On the other hand:

Even as the results for borrowers have been mixed, some lenders have minted profits that might make Wall Street bankers envious. For instance, investors in India’s largest microcredit firm, SKS Microfinance, sold shares last year for as much as 95 times what they paid for them a few years earlier.

So, these poor people, the borrowers, they had no money. Then microcredit came along and now they have less than no money! Many probably remember fondly when they were merely broke.

Debt is usually a bad idea for anybody, and a worse idea the poorer you are. Maybe microloans should be abandoned as a philanthropic approach (if it was ever correct to describe them as one).


Entry filed under: Economic Issues, International.

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