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Ideas in Development
What's Wrong with Microfinance?
By Bill Schweke on 04/01/2011 @ 10:15 AM
Practical Action, based in Great Britain, is the successor organization to E. F. Schumacher’s baby, the Intermediate Technology Group. It is also the publisher of a provocatively titled book that seeks to ask the big, tough questions regarding the successes and failures of microenterprise strategies in developing countries. Edited by Thomas Dichter and Malcolm Harper, who have decades of experience with the subject, What’s Wrong with Microenterprise is not meant to be a hatchet job. On the contrary, the 20-plus authors believe in microenterprise, but do not want to give it a free ride in terms of criticism.
The book identifies a number of worrisome issues: the dangers of micro-debt for poor borrowers, a growing need for more micro-savings, the difficulties of using group lending processes, the lack of good independent studies, the importance of other small firm support, the conflicting histories of the industrialization and innovation in the West, and more. For example, in developed economies, credit and new financial products evolved throughout their economic history – they were not the original spark.
Moreover, I was surprised by the lack of solid impact data on micro-firms. And I was taken by the book’s advocacy of livelihood finance, a more comprehensive approach to meeting the developing world’s needs for savings, credit, insurance, infrastructure finance and so forth. Shore Bank founders also contributed an interesting cross-national article on microfinance in the U.S. and the developing world.
What’s the bottom line? Microenterprise is not a panacea, but it has an important role to play, especially in the empowerment of women.
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