"Microfinance Is Useless."
No. It would be wrong to overreact to the hype about microloans and dismiss the entire enterprise as a waste of money and effort. Twenty years ago, journalist Helen Todd spent a year following the lives of 62 women in two Bangladeshi villages served by Yunus's famous Grameen Bank. Of the 40 who took microcredit from Grameen, all stated business plans to get the loans: They would buy cows to fatten or rice to husk and resell. A few actually did those things, but most used the money to buy or lease land, repay other loans, stock up on rice for the family, or finance dowries and weddings.
That's probably just fine. As the book Portfolios of the Poor shows, the people said to live on $2 a day actually don't. They live on $3 one day, $1 the next, and $2.50 the day after. Or they are farmers who earn money once a season. But their children need to be fed every day, and husbands don't fall ill on convenient schedules. The need to match an unpredictable income to spending needs with different rhythms generates an intense demand among poor people for financial services that help them set aside money in good times, when they need it less, and draw it down in bad.
All financial services help meet this demand, however imperfectly: loans, savings accounts, insurance, money transfers. A mother can pay the doctor for treating her daughter by getting an emergency loan from a friend, depleting savings, persuading her brother in the city to send money, or even -- if she is very lucky -- using health insurance. That is why the microcredit movement became the microfinance movement and today supports other services along with loans.
Poor people have less money than the rich, but they aren't dumber; in fact they are generally more resourceful out of necessity. If a woman uses a microloan to buy rice or repair a roof instead of starting a business, I hesitate to second-guess her. People in wealthy countries see fit to buy everything from food to houses on credit. Should we expect the poor to differ?
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