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Does ‘microlending’ actually fight poverty?

boston.com

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Re: Does ‘microlending’ actually fight poverty?

#21

Post by roundsquare »

The time frame is very problematic. With most Grameen style lending, there are several year long cycles where the size of the loan increases each year. So in year 1 you get a tiny loan, if you pay it back then in year 2 you get a slightly less tiny loan, etc...

In the first year, its fairly common for that loan to be used to refinance a loan at a really high interest rate from a local money lender, but this does provide some benefit. Now you are paying back a loan at 15% instead of 50%.

Also, a lot of the money goes into paying for kids' education, something that will not have any real ROI in the short term. I'm curious about the mention that education hasn't improved, from what I've seen this doesn't match but I haven't really done a large scale survey.

Its true, some recipients use the money for non profit-making activities (e.g wedding dowries), but my understanding is that many of these would happen anyway with loans at a higher interest rate.

In any event, anyone who thinks that one type of financial instrument is going to solve poverty is mis-guided, but I don't know that these studies really show a lot.

Re: Does ‘microlending’ actually fight poverty?

#22

Post by tsally »

trjordan wrote: post #19
tsally wrote: post #6

Well, last time I checked microlending had a repayment rate over 90%, so it certainly must have some impact. If it wasn't effective in fighting poverty, I doubt you'd see such a high repayment rate. Will microlending alone solve the problem? No. But it's one of the best tools we've got so far.

Did you read the article? The point seemed to be that it certainly smoothed out some peoples lives, it did not actually have a measurable effect on the wealth of either their families or their communities. It struck me as something closer to credit cards for all instead of business loans for all. When you're poor, credit can help carry you through periods where you might lose a lot due to unlucky circumstances, but i…

Did you even read my comment? I specifically addressed this when I said: "Will microlending alone solve the problem? No.". I simply argue that microlending is one tool out of many that we should use.

Indeed, you seem to agree with me: "credit can help carry you through periods where you might lose a lot due to unlucky circumstances". Allowing families to hold onto a lot of resources they would have lost certainly is helping to fight poverty.

Re: Does ‘microlending’ actually fight poverty?

#24

Post by roundsquare »

quellhorst wrote: post #23

So putting people into debt doesn't help them get out of poverty? Is this surprising?

You should read a bit about micro finance. Most of the people receiving it are already in debt, micro finance offers debt at a better interest rate, sometimes with training, and often with a support group. Its supposed to be (in theory) better debt.

Re: Does ‘microlending’ actually fight poverty?

#26

Post by vitaminj »

I can't say this is at all surprising. My experience in providing rural communities with electricity is somewhat analagous to what is being said about micro-credit.

I've been working on rural electrification in a small developing country for the last 7 months. Donors and NGOs are always banging on about how access to electricity will lead to income-generating and educational activities among the villagers, eg. they could buy a bamboo-cutting machine or study textbooks at night under fluorescent lamps.

But we invariably find that apart from lighting, the first thing most households do when they get electricity is buy a home stereo system or a tv and satellite dish. One of my colleagues scoured the countryside for evidence of income-generating activities and the best he could find was a bunch of villagers sorting farm produce under a lamp.

So like micro-credit, it seems that access to electricity is more about making life in rural communities more convenient than it is about climbing out of poverty.

Re: Does ‘microlending’ actually fight poverty?

#27

Post by tybris »

johndoe77 wrote: post #16

I would say yes. The 2006 Nobel Peace Prize was awarded to Muhammad Yunus of Bangladesh for helping millions. http://www.rediff.com/news/2006/oct/13nobel.htm Former President Bill Clinton just name dropped Yunus on The Daily Show this week. He mentioned that a microlending bank has up popped up in NYC.

Thorough MIT study says no, yet price that is awarded to corrupt and sometimes criminal statesmen all the time says yes.

I guess that means yes.

Re: Does ‘microlending’ actually fight poverty?

#28

Post by onreact-com »

vitaminj wrote: post #26

I can't say this is at all surprising. My experience in providing rural communities with electricity is somewhat analagous to what is being said about micro-credit. I've been working on rural electrification in a small developing country for the last 7 months. Donors and NGOs are always banging on about how access to electricity will lead to income-generating and educational activities among the villagers, eg. they c…

"So like micro-credit, it seems that access to electricity is more about making life in rural communities more convenient than it is about climbing out of poverty."

Making life convenient is climbing out of poverty. In the West only the homeless don't own TV or can't at least afford them. You can't expect people who have nothing to invest the first money they get.

On the other hand mobile phones have proven very useful in the developing world. They get used for everything: Banking, people rent their mobiles to other people (like a phone booth so to say), even organizing fishing (fishers exchange news where the fish actually is).

Re: Does ‘microlending’ actually fight poverty?

#29

Post by onreact-com »

Creating precarious working places for otherwise desperate people helps a lot but on the other hand can't lift an economy out of poverty.

As long as most countries in the so called "third world" get exploited by the West which via the IMF and World Bank does not even allow them to built an infrastructure ("barriers to free trade" like hospitals, schools, environmental protection, labor rights) they won't make it.

The West should pay reparations for colonialism and slavery to the countries affected by them. This would ease the situation a little.

Re: Does ‘microlending’ actually fight poverty?

#30

Post by Tangurena »

roundsquare wrote: post #24
quellhorst wrote: post #23

So putting people into debt doesn't help them get out of poverty? Is this surprising?

You should read a bit about micro finance. Most of the people receiving it are already in debt, micro finance offers debt at a better interest rate, sometimes with training, and often with a support group. Its supposed to be (in theory) better debt.

It also makes the donors who finance Grameen feel better about themselves.

The better interest rate is a great idea, as there are many farmers in India and Pakistan that commit suicide because they got trapped into a cycle of debt that they cannot escape.

And I suspect that the better repayment rate has a lot to do with social pressure. The support groups are part rah rah team and part shame squad to guilt the delinquent into repaying the loans.

Microlending is better than what the locals have already (which are pretty much what we call "loan sharks" in the West). It isn't as good as the lending and financial industry that we have here, but it is an improvement, and in my opinion, a step in the correct direction.

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