Microlending – Good for the Poor, Good for the Planet

So says the Worldwatch Institute :

"The number of "microborrowers" worldwide-people participating in the rapidly growing field of microfinance-increased by 17 percent in 2006, benefiting both communities and the environment, according to the latest Vital Signs Update released by the Worldwatch Institute.

"By helping individuals and villages replace firewood, oil, and kerosene with solar, wind, hydro, and biofuels, microfinance institutions help to improve the local environment while expanding access to electricity, boiled water, and refrigeration, dramatically improving the quality of life of the poor," said Worldwatch Senior Researcher and Update author Gary Gardner."

But the report also indicates one potential danger related to the success of microlending: its folding into the market and being turned into profitable investment by hedge or pension funds.

"The sudden and significant success of microfinance is increasing pressure on many microfinance institutions to become more commercially oriented in their operations. Some analysts fear that this shift may cause microfinance institutions to raise interest rates or distribute profits to shareholders rather than reinvesting them in microfinance activities, hindering their original mission of poverty reduction. Proponents of private investment counter that commercializing microfinance is needed to attract the large sums of capital that will allow the practice to spread rapidly."

This is something that Grameen Bank founder Muhammad Yunus (considered the founding father of microlending) strong disapproves of, as he prefers to promote a social business model. This trend was illustrated by a very interesting issue of Now on PBS on for-profit Mexican microlender Compartamos, Who’s Making Money from Microcredit?

MSC But this is reason for caution, not giving up. There is still enormous potential for expansion for microlending, which is why the Microcredit Summit Campaign has launched a new campaign:

  • 175 million of the world’s poorest families, especially the women of those families, are receiving credit for self-employment and other financial and business services by the end of 2015.
  • 100 million families rise above the US$1 a day threshold by 2015.

And as is often mentioned, women are the prime beneficiaries of microcredit. It is not a panacea. Microcredit will not solve the global poverty problem but it is one small- (or not so small) scale solution that can have short-term impact.

I also love how the success of microcredit shows that the poor are not poor for lack of skills and that they do not need us to teach them how to conduct business. Provided with the opportunity to do so, with a small load, they can take care of themselves and run their businesses successfully, without economic prescription from the Chicago Boys, or the IMF.

The best example of this is Kiva (disclaimer: I am a Kiva lender, as the button at the top of the page shows… I would encourage everyone to click on it and become a lender for a little as $25).

Leave a Reply

Your email address will not be published. Required fields are marked *