Microlenders, Honored With Nobel, Are Struggling

Wednesday, January 5, 2011

MUMBAI – Microcredit is losing its halo in many developing countries.

Microcredit was once extolled by world leaders like Bill Clinton and Tony Blair as a powerful tool that could help eliminate poverty, through loans as small as $50 to cowherds, basket weavers and other poor people for starting or expanding businesses. But now microloans have met with political hostility in Bangladesh, India, Nicaragua and other developing countries.

In December, the prime minister of Bangladesh, Sheik Hasina Wazed – who had championed microloans alongside Mr. Clinton at talks in Washington in 1997, while Mr. Clinton was president – turned her back on them. She said microlenders were “sucking blood from the poor in the name of poverty alleviation,” and she ordered an investigation into Grameen Bank, which had pioneered microcredit and which, along with its founder, was awarded the Nobel Peace Prize in 2006.

In India, until recently home to the world’s fastest-growing microcredit businesses, lending has slowed sharply since the state with the most microloans adopted a strict law restricting lending. In Nicaragua, Pakistan and Bolivia, activists and politicians have urged borrowers not to repay their loans.

The hostility toward microfinance is a sharp reversal from the praise and good will that politicians, social workers and bankers showered on the sector in the past decade. Philanthropists and investors poured billions of dollars into nonprofit and for-profit microlenders, which were considered vital players in achieving the United Nations’ ambitious Millennium Development Goals for 2015, which world leaders set in 2000. One of the goals was to reduce by half the number of people in extreme poverty.

The attention lavished on microcredit helped the sector reach more than 91 million customers, most of them women, with loans totaling more than $70 billion by the end of 2009. India and Bangladesh account for half of all borrowers.

But as with other trumpeted development initiatives that have promised to lift hundreds of millions from poverty, microcredit has struggled to turn rhetoric into tangible success.

Source: The New York Times (link opens in a new window)