Is Micro-Credit the Answer?
Monday May 21st 2007, 10:09 am
Filed under: 50:50, aid and development, economic empowerment, globalisation, mico-credit

by Sundra Flansburg and Natalie Elwell, World Neighbors

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With the award last December of a Nobel Peace Prize to Mohammed Yunis, founder of the Grameen Bank, micro-credit has received another round of accolades and promotions as an answer to widespread poverty around the world. Give poor women access to small bank loans, so the thinking goes, and they can start micro-businesses and improve their livelihoods by competing better in free markets.

Admittedly, this is an oversimplification of Yunis’s and other micro-credit advocates’ efforts. Another version of this thinking comes recently as microfinance, and is promoted by a new group of “social entrepreneurs” who tend to rephrase goals of ending poverty with ones promoting economic empowerment. While we think that there is a place for micro-credit and micro-finance in efforts to end poverty, we believe that there are some fundamental flaws in thinking of this approach as a key one in ending poverty and improving the lives of poor women.

We urge the G8 to recognize the complexity, and especially the social aspects, of poverty in addition to the dollar aspects, and support a web of strategies that combine to build skills and capacity, reduce vulnerability and benefit women and their communities in a sustainable way.

Why Micro-Credit Isn’t the Answer

Part of the problem with micro-credit rests not with the real benefits it provides to a certain segment of the population, but rather with the expectation by some that it is the answer to rural poverty. This belief shows a lack of understanding of the complex nature of poverty. Capitalizing micro-businesses is one piece of the solution, but without a wider, holistic effort, this kind of credit will mainly benefit the entrepreneurs and slightly less poor who are able to develop business plans and make them work.

Another significant issue with micro-credit is the fact that in the vast majority of cases, control of capital stays outside the community and the money itself reverts to an outside institution. Therefore, micro-credit tends to focus on individual successes and neglects the possibilities and power of collective action and work. When control rests outside the community, it is easy to lose sight of the welfare of the borrowers and focus only on better “returns on investment.”

Additionally, micro-credit models often fail to build borrowers’ capacity to do anything but develop a market analysis and basic business plan. A large number of the world’s poor women are marginalized within their communities and even their families, and lack confidence and experience in trying something new. They have responsibility not only for contributing to family income but to caring for children and the ill, collecting water and fuel wood, preparing their family’s meals, maintaining the home and any number of assorted family responsibilities. If the bigger picture of workload and marginalization is not addressed in a significant way throughout the process, women will continue to struggle with an impossible burden.

Finally, micro-credit, but especially microfinance, rest on an unexamined assumption that free markets are the answer to social problems like poverty. They leave unchallenged the idea that the poor only need a hand up at the start and will then be able to compete with large businesses in producing and selling their wares. Susan Feiner and Drucilla Barker point out that micro-credit on its own ignores the structural reasons that women are poor and neglects the social and political work needed to ensure that women business owners and workers improve their lot and enjoy basic human rights.

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