Seema Patel

Easy Money – Criticizing Microcredit

Microfinance India 2There is no doubt that there is something to microcredit, though there are critics. But have we let the hype behind the idea, (see Rob’s post about Yunus’ Nobel Peace Prize) blind our ability to see its faults?? This Forbes article, Easy Money, goes deeper into some of the fallacies of microfinance.? It’s worth reading.? An excerpt:

In the K.R. Puram slum in Bangalore, India, a group of 15 women gather in a small, muggy living room. The electricity comes and goes, turning the fan and the single bare lightbulb on and off. Flies buzz around the room, and children run in and out.The women have borrowed $330 and meet weekly to make repayments. The loans were meant to serve as capital for them to start small businesses and, eventually, lift themselves out of poverty. But the women say the loans haven’t turned into new income. Sitting in a circle on the floor, some sound sad and others angry. One woman has started selling firewood, but others haven’t started businesses at all. Instead, they say, the money helped them pay for urgent expenses, such as their children’s school fees.

It’s a scene that’s repeated inside dark living rooms and on parched rooftops across India. Boosted by a government mandate to keep the startup funds flowing, lenders making these small, or microcredit, loans are dutifully throwing cash at shantytown borrowers. And the funds– $1.3 billion was lent during the year ended Mar. 31, up from $4 million in 1996–are often being used not as seed money for a new enterprise, such as buying a cow to sell the milk or setting up a fruit stand, but as handouts spent on consumption. D.S.K. Rao, the Asia organizer for the Microcredit Summit Campaign, estimates that only one-fifth of Indian microcredit borrowers start a business. Mathew Titus, executive director of New Delhi-headquartered Sa-Dhan, an association of microcredit lenders, says it’s one-third, counting women who barter instead of selling goods.