In Lining Up the Loan Angels, Mac Margolis rambles through arguments against microcredit and a few for. By the end, I wasn’t sure where Margolis meant to take us. But, the subtitle is a clear position:
Critics put trendy poverty lenders to the test, and find they’re neither a real business nor a real help.
Margolis cites two “ wonk” studies and an essay:
The Myths and Magic of Microcredit
This was presented in June, 2006. I don’t know the message delivered then—considering only the slides, I see an optimistic review of microcredit and microfinance experiences:
- The poor need more than microcredit, i.e., microfinance
- Reducing poverty through microfinance is possible, though not easy or straightforward
- Microfinance isn’t a panacea for post-disaster redevelopment
- There are “interesting” technical developments in microfinance, e.g. using smart cards and ATMs
Money Is Not Enough: Social Capital and Microcredit
Referencing this paper by Angelyn Zephyr is stranger, it’s about the relation of social capital to two US microcredit initiatives, the Women’s Self-Employment Project and the Southern Good Faith Fund. Each attempt met some failure and resorted to traditional US approaches, i.e., business training, background checks, etc.
Zephyr thinks lack of social capital among US poor eliminates a microcredit strength, i.e., peer pressure against defaulting. But, Grameen 2, implemented years before this paper, doesn’t espouse that pressure—a change also noted in The Myths and Magic of Microcredit.
Microfinance Reconsidered
While I couldn’t find this one by Thomas Dichter, the Cabot Institute has a February, 2007 essay from him, A Second Look at Microfinance—maybe what Margolis was referring to. But I hope not, it’s a comparison of the economic histories of rich countries, which still have serious poverty problems, to the use of microcredit for developing Dichter’s idea of “real businesses.” Still, it’s worth reading as exercise for the facial muscles:
As many practitioners of microcredit (including this author) have learned, however, money is fungible—it can be used for anything.
Becker-Posner
Margolis cites Richard Posner’s post in The Becker-Posner Blog, Microfinance and Third World Poverty and Development, interesting and coherent skepticism also commented on by Gary Becker, but not a “backlash.”
Bosna i Hercegovina
All I found, where Milford Bateman refers to a “bazaar economy,” is The informalisation of the BiH economy and the role of the microfinance model, a bitter and fascinating review of the negative results of microcredit in Bosnia and Herzegovina. This, more coherently than any other I’ve found, makes a case against microcredit.
As good as it gets?
As Margolis points out, there’s a disappointing lack of data on microfinance—ironically, given his disparagement of the study authors as wonks. Bateman’s paper is interesting, Becker and Posner have well-constructed opinions, and The Myths and Magic of Microcredit is a quick and interesting read. But, the Newsweek article points to nothing new or insightful, just examples of bandwagon jumping, reinforcing that economic understanding should first be of secondary effects, especially when governments meddle in markets.