Tuesday, January 10, 2012

The Microfiance Debate Continues: Does it Really Work?

David Rooman, a once ago defender of Microfiannce now says no. In his new book, Due Diligence, Rooman indicates that the average impact of microcredit on clients in zero. This conclusion is drawn off of years of research, stemming from the idea that tiny loans can be dished out to the poor, especially among women, to drastically reduce global poverty, and will overall positively affect our economy. This, however, only sometimes works, as billions are poured into government projects.

"Roodman's assessment is far afield from the enthusiasm microfinance programs have generated since the first institution for them, the Grameen Bank in Bangladesh, opened in 1976. The bank's founder, Muhammad Yunus, won the Nobel Peace Prize in 2006 and is probably the third world's most celebrated economist." (Read more)

Yunus' original idea seemed so simple at one point in time: that millions could be lifted out of poverty and the global economy could benefit if only the poor could obtain credit. Kumarian Press's new Whose Sustainability Counts? discusses Yunus's position in the microfinance industry and the state of the business today.

Although popular in the U.S. and in Europe, Rooman found that institiutions' repayment records affect the borrower. This came as a surprise as microfinance organizations have in the past been known for having a better repayment rate of loans than the banks themselves.

Rooman says that the generosity of the U.S. and the E.U. has lead to a negative impact on the economy. The giving is actually hurting, by not teaching those to save money.

Roodman says. "Poor people can save — they just want safe places to do it."

Milford Bateman, author of Confronting Microfinance will be at USAID in Washington, D.C. on January 30th to debate Rooman on this issue.

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