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Wednesday, June 27, 2007

Micro-credit mising it's mark? Wait, is there a clearly established mark?

Since micro-credit is such a major part of our economy (the implications of which I will not go into here), some interesting blog posts and links courtesy of, below.


Article by Aneel Karnani (author of "Mirage at The Bottom of the Pyramid") in Stanford Social Innovation Review, “Microfinance Misses It’s Mark

“Despite the hoopla over microfinance, it doesn’t cure poverty. But stable jobs do. If societies are serious about helping the poorest of the poor, they should stop investing in microfinance and start supporting large, labor-intensive industries. At the same time, governments must hold up their end of the deal, for market-based solutions will never be enough.”


Is the Microfinace Model Broken?

"It seems timely to revisit the need for scrutiny in the microfinance industry as it enters the mainstream and to hopefully broaden the debate beyond academic circles and development institutions. CGAP this month published a focus note analyzing the Compartamos IPO, essentially seeking to answer the question of whether the exceptionally high profits Compartamos has earned for its private shareholders can be justified for an organization that is supposed to have the social interests of its clients in mind. CGAP's answer, while not completely damning, is not a vindication for Compartamos either - they conclude that the NGO could have reasonably charged lower interest rates that would have decreased profits but allowed poor clients to keep more of their earnings."


Bjoern Lasse Herrmann said...

there will be always people who believe that there is this big solution. You just build a labor-intensive industry or you just do this. However I am very happy with the recent development away from these big solutions that obviously fail but towards micro entrepreneurship.
Every single person matters by what they do and not by what they have.
To build a labor-intensive industry out of the blue is non sense and would be huge failure.

bengal*foam said...

Dear Bjoern,

Thank you for the comment. But please clarify. Do you mean such nonsensical "out of the blue" failures as the ready-made garments (RMG) industry? Or the labor export market? Or perhaps the mobile telecommunications industry?

There's certainly a lot of room for debate, which is welcomed, but perhaps this excerpt from the "Microfinance Misses It's Mark" article will serve as a gentlemanly rejoinder:

"To understand why creating jobs, not offering microcredit, is the better solution to alleviating poverty, consider these two alternative scenarios: (1) A microfinancier lends $200 to each of 500 women so that each can buy a sewing machine and set up her own sewing microenterprise, or (2) a traditional financier lends $100,000 to one savvy entrepreneur and helps her set up a garment manufacturing business that employs 500 people. In the first case, the women must make enough money to pay off their usually high-interest loans while competing with each other in exactly the same market niche. Meanwhile the garment manufacturing business can exploit economies of scale and use modern manufacturing processes and organizational techniques to enrich not only its owners, but also its workers."

Yours fraternally,