Rob Katz

Microcredit: More Harm Than Good?

Thomas Dichter, a returned Peace Corps volunteer and development consultant to USAID and the World Bank, has written what Alex aptly calls a ?provocative and controversial essay?in which he claims that microcredit is not nearly as good a tool as it’s made out to be, and that what the world’s poorest most need are good governance, clearer laws, less corruption and more development.? NextBillion readers will find Dichter’s essay, Hype and Hope: The Worrisome State of the Microcredit Movement, interesting in part because he calls for increased attention to mesofinance, an area we’ve written about before. You may recall that mesofinance is the oft-unserved gap between small microfinance (<$5000) and commercial finance (>$500,000). Dichter accuses MFIs of leaving promising entrepreneurs behind because ?they are not poor enough?:

Indeed, in part because of what has been aptly called “microfinance evangelism,” the prospect of significant returns from microcredit made available to solid enterprises has become less likely. This is because those who can really leverage a small loan -somewhere between poor and well-off – who have already got a genuine business going against all odds are often left out of microcredit basically because they are not poor enough. (My emphasis)

Dichter concludes:

To move forward the best operators of microcredit need to become banks, move more seriously into savings mobilization, and learn to deal with banking policy and other (institutional) aspects of the enabling environment. And they need to come to terms with the constraints imposed by political correctness – by being unafraid of lending to real businesses, and unafraid of abandoning the subsistence activities in the informal sector.

Surprisingly, I couldn?t find much buzz on the blogosphere about this one, aside from Worldchanging (thanks, Alex!) Who else is talking?