CGD Policy Blogs
Because of circumstances beyond their control (sickness, flood, drought, theft and so on), lack of skills and knowledge or taking bad decisions, a proportion of poor borrowers encounter great difficulties in repaying loans. While MFIs [microfinance institutions] suggest that such problems are overcome through ‘social support’ in some painless way this is often not the case---talk to the dropouts of MFIs!
No post on this blog will I write with less objectivity than this one. CGD and the Financial Access Initiative have just released a working paper by Jonathan Morduch and myself that critiques what have been the leading studies of whether microcredit reduces poverty. We recreate three well-known analyses of survey data collected in Bangladesh in the 1990s.
Siddhartha Chowdri, ACCION International's Country Manager for India, has posted a warning on the blog of the Center for Financial Inclusion about the dangers of overheated competition and growth in microcredit in India. Some people, he says, are borrowing too much, from too many microfinance institutions (MFIs). The resulting situation, as in Andhra Pradesh a few years ago, is politically combustible.
One perspective through which I am judging microfinance is Amartya Sen's notion of development as freedom. What do we know about when microfinance gives people more agency in their lives and when it, contrarily, reduces their control over their circumstances (the main worry being debt traps)? With regard to microfinance, "empowerment" usually refers specifically to helping women break the bonds of sexism within their families and societies.
National Public Radio's "On the Point" talked to Daryl Collins and Stuart Rutherford about Portfolios of the Poor...and, wonderfully, to one of the circa-$2/day people whose finances were chronicled. His name is Lufefe and he lives in Langa township outside of Cape Town, South Africa. He enters the show at 20:00.
A central question in judging microcredit: When can we as creditors trust the judgment of the poor as borrowers? These days we can all reel off examples of unwise borrowing in rich countries (though I daresay unwise lending is more to blame for the current crisis). Do the world's poorest people, with less margin for financial folly, borrow more prudently? Two things I've read recently tend toward opposite answers to this question.