Microcredit loans used to buy food
Friday, June 5, 2009
Fewer than half of microcredit borrowers invest the money in the grassroots businesses that such loans are intended to foster, new research into poverty alleviation has discovered.
But the claim is disputed by some microlenders, including ASA of Bangladesh, winner of the Banking at the Bottom of the Pyramid category in last year’s FT Sustainable Banking Awards.
Microcredit was devised in the 1970s in Bangladesh by Muhammad Yunus, who founded the Grameen Bank to lend small sums to rural women to buy livestock or invest in arming activities or small businesses. Mr Yunus won a Nobel prize three years ago for his work in tackling poverty.
Researchers say microlenders have realised that many extremely poor borrowers are using their loans for other purposes, such as buying food reserves.
This shows that the benefits of this fast-growing system to people outside the traditional banking net are not as have been portrayed by microlenders, say the researchers, although they say it does not undermine the value of the system.
Stuart Rutherford, the author of several books about a system hailed for enabling the very poor to build sustainable businesses, has led a three-year research project into the way borrowers in Bangladesh used loans. He says that the microcredit industry has been “discovering and acknowledging” in recent weeks that fewer than half borrowers invest in grassroots businesses. But microlenders have kept quiet about this, “pragmatically realising that the rags-to-riches-through-microenterprises story was valuable to the industry as a whole”.