12 March 2012

Loans Aren’t the Solution


There has been enough time and evidence now to explore the full impact of microcredit in depth, and, set against its vaunted reputation, my verdict is dour: Microcredit rarely transforms lives. Some people do better after getting a small business loan, while some do worse — but very few climb into the middle class. It’s a constructive endeavor, but it has been vastly overhyped. And the hype has undermined the good that the movement can achieve.

This shouldn’t really come as a surprise.  While microcredit loans are fairly reliable, in terms of risk, they don’t actually do all that well when making a difference.  The reason for this is simple:  credit is not a magical potion that fixes all of life’s ills.  Rather, debt is toxic, particularly when it is massive in scope (in a relative sense, of course).  Plus, as one wise man once observed, time and chance happens to everyone.  Thus, the fact that credit can’t cure every economic woe coupled with the normal fluctuations and happenstance in life has ensured that microcredit has made all that much of a difference.

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