Towards a critique of microfinance

In: Uncategorized

4 Oct 2009

An article in today’s Sunday Times (London) suggests that microfinance fails to spread wealth. It cites studies by Dean Karlan and Jonathan Zinman of Yale as well as another by Esther Duflo, a professor at the Massachusetts Institute of Technology. For example, it quotes Karlan as saying: “Microcredit is not a transformational panacea that is going to lift people out of poverty”. He goes on “There might be little pockets of people who are made better off, but the average effect is weak, if not non-existent.”
From this and previous posts there are several possible lines of attack against microfinance:

• Muhammad Yunus, probably the most influential figure in microfinance, is strongly in the growth sceptic tradition (see 24 May 2009).

• Interest rates on microfinance loans are often exceedingly high (see 8 December 2008).

• Microfinance institutions are often highly profitable, their schemes focus on the poorest of the poor rather than promoting broader development and they often impose highly intrusive conditions on borrowers (see 15 October 2006 post).

• It is also probably also worth exploring the divisive character of microfinance: often lending to women and refusing to lend to men.