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The MicroCredit Just Another Scam

Politics / Debt & Loans Oct 14, 2009 - 02:16 PM GMT

By: Jeffrey_A_Tucker

Politics

The hysteria about the glories of microcredit must have been another illusion created by the economic boom, but somehow, there for a while, it was hard to talk sense into anyone on this issue. Somehow, all the world came to believe that the key to lifting people out of poverty was to grant everyone loans that they then had to service out of some income stream that they didn't have.


This strategy of loans-to-the-poor was supposed to be the magic means by which people could bypass the old-fashioned stage of saving, investing, exchanging, and producing. Even the classical liberals believed it, as shown in the breathless tributes to Professor Yunus after he received yet another prize for his Midas-touch act.

As the author of two of the only pieces online attacking microlending, I've been dealing with incredulous emails on this subject for a long time. Better material has been popping up in the last year, in other a few other places.

And yet today, even Buttonwood is beginning to see the distinction between debt and wealth. And the Boston Globe is now debunking the Grameen Myth.

Reporting on two new studies, the journalist reports:

What they find is that, by most measures, microcredit does not offer a way out of poverty. It helps a few of the more entrepreneurial poor to start up businesses, and at the margins it may boost the profits of existing microenterprises, but that doesn't translate into gains for the borrowers, as measured by indicators like income, spending, health, or education. In fact, most microcredit clients actually spend their borrowed money not on a business, but on household expenses, on paying off other debts or on a relatively big-ticket item like a TV or a daughter's wedding. And while microcredit champions point to microloans as a tool for empowering women, the studies see no impact on gender roles, and find evidence that if any one group benefits more, it's male entrepreneurs with existing businesses.

Jeffrey Tucker [send him mail] is editorial vice president of www.Mises.org.


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Comments

Nik
19 Oct 09, 09:26
Scam?

So, where's the scam? The headline of this piece is misleading.

The sentence, "This strategy of loans-to-the-poor was supposed to be the magic means by which people could bypass the old-fashioned stage of saving, investing, exchanging, and producing" indicates the fundamental lack of understanding the author has for those in poverty or for the microfinance sector, as the people in question simply cannot save, invest or produce...


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