Microfinance under the microscope: more questions being asked

Once upon time, it was impossible to talk about microfinance without something like reverence. The ‘hats off’ period seems to be over as questions about its limitations multiply. The Wall Street Journal recently accused microfinance institutions in India of indiscriminately over-lending as they seek to maximize profits and claimed that some poor neighbourhoods are being ‘carpet-bombed’ with loans. The result is there is an impending credit crisis and repayment revolt, as people are urged not to repay their loans in protest. Vikram Akula of SKS Microfinance described the Journal’s reporting as shoddy, maintaining that an overload of debt among a few individuals in one slum, in one city, in one state of India hardly constitutes a bubble. He pointed out, among other things, that repayment rates in India are generally solid.

Further criticism of microfinance, however, comes from the journal Foreign Policy, which argued in an article on 18 August that Muhammad Yunus’s laurels notwithstanding, his idea has had little ‘real-world impact’. The $17 billion of loans provided by microfinance organizations as of 2004 is nothing like enough to meet the credit needs of the poor and allow them to escape from poverty.

Next News to read

From a blog and a wealth advisory firm comes Tactical Philanthropy Advisors

Alliance magazine