It was kind of exciting that a bank and a banker won the Nobel Peace Prize this year. We thought we were being a bit mean spirited when we pointed out that we couldn't quite figure out what making tiny little loans had to do with peace. Turns out we weren't skeptical enough. As Richard Posner points out on the Becker-Posner Blog, microfinance is probably way overrated.
The evidence for the efficacy of microfinance in stimulating production and alleviating poverty is so far anecdotal rather than systematic. The idea of borrowing one's way out of poverty is passing strange. And I am unaware of any historical examples of nations that climbed out of poverty on the backs of small entrepreneurs financed by credit.
Microfinance and Third World Poverty and Development [Becker-Posner Blog]
Posted by , Oct 30, 2006 5:47PM
Uhmm...
"The causes of war are complex, and it is by no means clear that poverty is a major one."
First off, I'd like to know what source lists Grameen as the first microcredit institution. United Bank Ltd (UBL) was making small loans to Pakistani farmers as early as 1959. (This institution was dissolved in 1972 with the nationalization of Pakistani banking - its founder, Aghad Abedi, went on to found the infamous Bank of Credit and Commerce International, with Bank of America as a major shareholder, which blew up in the 90s.)
Anyway. The pro-microcredit argument is pretty basic. First of all, this isn't an argument for the need for "microcredit", it's an argument for the need for credit, period. Most countries, not just third world, but even "emerging" ones like Brazil, have extremely limited integrated retail banking systems and access to personal financing. For most people in the world, any purchase leading to the enhancement of one's quality of life (a business, or farm equipment, or a home or car) must be made in cash. So unless your grandfather leaves you some land or farm equipment or a 1982 VW Scirocco, it's damn near impossible for you to to do anything else with your life besides work for the people who own all the shit and have for hundreds and hundreds of years, and spend every dime you have on rent.
Without microcredit, your only other option is the local moneylender in your village - whose interest it is to keep you in debt for the rest of your life with rates at like 2-300%. The microcredit loans, while high interest, are actually within reach for these people to pay back.
It's pretty alarming for Randolf and Mortimer to assert that giving a woman a $10 loan for farm equipment has nothing to do with improving local economic infrastructure -not to mention peace. (For reference, the equipment we're talking about is along the lines of a metal hoe or a manual tiller to replace the stick with a rock at the end of it that her grandmother used.) The idea that it is possible to make money to start your own business if you don't have access to a loan is ridiculous.
If we want to see if the evidence is anecdotal, let's remove access to personal credit or retail banking in the US for a generation or so and see how peaceful we all are.