Re: Microfinance Query
Dennis Perrin wrote:
I was flipping thru a recent issue of The Economist which focused on how the world’s poor can be pulled out of their miserable state via “free enterprise,” and the term thrown around most was “microfinance.” Could any of you economic comrades please lay out for me what exactly microfinance really means? And is there a pseudo-evangelical tone to all this global captial raving?
Yeah, you’re right about the tone, and it’s in no small part because it does involve the triumph of faith over evidence. Microfinance - small loans to very poor people, mainly women, to finance very small businesses, usually gorified versions of the informal sector pursuits that occupy the desperately poor- is beloved of the official development crowd and their fellow travellers in the foundation world. There’s little evidence that it does much to reduce poverty, or even to increase women’s power (in many cases, men retain control over the money, because it goes into the patriarchal family pot). But it’s market-based and grass-rootsy, so it gets liberal developmentalists all tumid and/or wet. It’s a very weak substitute for what the poor really need, which is serious public investment in schooling, health, and infrastructure.
Doug
November 11th, 2005 at 3:39 pm
Good Sir,
I very much agree that the “development aid” and foundation worlds are soft and should not be trusted (see our post today), microfinance however, IF DONE RIGHT, is emerging as a certified assets class. On Nov. 7 we report on a new $75m fund run by Deutsche Bank with an investor role that includes Merrill Lynch. These are first-tier investment banks making for-profit investments. Times are changing. The only way to undo the hell of “aid” is to beat them at their own game, and drive them out of business. Access to capital is increasing and the price of capital is dropping all over the developing world because of microfinance (if done right). This constitutes a responsible, capitalistic solution. Cannot imagine you would state that cheap, broad access to financial services for the global majority would not lessen poverty. However, it is clear from your last sentence above that you have yet to imagine solutions beyond government investments, which have done more to ruin the potential of microfinance than anything else. On one hand, you insult public and quasi-public efforts (rightfully), and then you advocate them. Broad access to well-priced capital for the global poor managed by reponsible firms is a new solution, whereas you promote a past proven to increase poverty in the developing world where governments are totally corrupt.