NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, January 24, 2006

Is credit a human right?

If these poor people could get small loans at manageable rates, they could break out of the cycle of poverty, or so the theory goes. John Kenneth Galbraith spoke to the point 30 years ago. ’The function of credit in a simple society is, in fact, remarkably egalitarian. It allows the man with energy and no money to participate in the economy more or less on a par with the man who has capital of his own. And the more casual the condition under which credit is granted, and hence the more impecunious those accommodated, the more egalitarian credit is.’
[…]

Economic development is often conflated with short-term poverty reduction, which is in turn confused with a mere lightening of the burden of poverty (’poverty alleviation’). But development and poverty alleviation are about as similar as clearing a swamp to eradicate mosquitoes is the same as applying a repellent to one’s skin to keep the mosquitoes away for a few hours. To date, there is little evidence that microcredit leads to economic development.

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