Microfinance Skeptics Pounce

♠ Posted by Emmanuel in at 5/14/2007 09:47:00 PM
2006 Nobel Peace Prize winner Dr. Muhammad Yunus, founder of Bangladesh's Grameen Bank has his share of detractors, hard as it is to believe with all the praise being heaped on microfinance. This article from The American is the result of a reporter trying to deliver the skinny on microfinance's unacknowledged shortcomings:

Thomas Dichter, who has worked in international development since 1964, agrees. In a February paper titled “A Second Look at Microfinance,” for the Cato Institute, he concludes that the advantages of microcredit are overstated, writing, “History seems to be telling us that economic development and its consequent massive poverty reduction did not depend on microcredit being made more accessible for income production or asset acquisition by the poor. Instead, it was the process of development that created jobs, which in turn made the working poor an attractive target for financial services, beginning with savings and then moving toward consumption.” Dichter quotes the late British economist Peter Bauer: “To have money is the result of economic achievement, not its precondition.”

Dichter calls himself a member of the “microfinance movement,” but he is skeptical of the Grameen Bank approach, instead favoring institutions like the Bank Rakyat Indonesia’s Unit Desa system, which, he writes, uses “hardly any outside resources” and instead operates as a thrift society, depending on the savings of its members.

Dichter, however, is not an all-out critic of Grameen. One of the few to fall into that camp is Jeffrey Tucker of the Ludwig Von Mises Institute, who finds the Grameen literature to be “an echo chamber of hurrahs.” By 1999, he said, the bank never had turned a profit. “In fact, it is not a bank at all. It is more correct to view Grameen as a conduit for international aid dollars.”[8]

Jonathan Morduch, a professor of public policy and economics at New York University, writing in the Journal of Economic Literature, said in 1999 that “most [Grameen] programs continue to be subsidized directly through grants and indirectly through soft terms on loans from donors.” The best-known microcredit programs “cover only about 70 percent of their full cost.” Grameen, he wrote, “is in fact subsidized on a continuing basis.”

So I guess that was what was on my mind. If you lend money at 20 percent and everyone repays, you don’t need guilt-edged money from the West Coast. Microcredit is such a fashionable cause that maybe Yunus has all along been a high-class beggar himself, taking his bowl around to Bill Gates, Sergey Brin, and Larry Page, and using the proceeds to pretty up his balance sheets.