Microfinance – a crack in the consensus

In: Uncategorized

1 Apr 2007

It seems there is a crack in the near universal consensus in favour of microcredit (extending tiny loans to third world entrepreneurs). Newsweek reports that a backlash is growing:

“Critics on the left charge that micro-finance privatizes social safety networks, while conservatives dismiss it as charity disguised as enterprise. Wonks weigh in with studies like “The Myths and Magic of Microcredit” and “Money Is Not Enough.” Insiders turn on the industry. Loïc Sadou-let, a former World Bank economist who worked in microfinance in Guatemala, estimates that only about 300 of nearly 25,000 microlenders have reached financial “sustainability,” meaning they are able to cover all costs.”

A critical essay by Thomas Dichter, an international aid expert, is also available on the Cato Institute website. In his view most such credit is likely to be use to fund consumption rather than investment.

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