Limits of Micro-Loans

The dilemma of most low-income countries is that a majority of the citizenry often have no employment or regular incomes. The Grameen Foundation based in Bangladesh and the micro-finance movement has had deservedly high acclaim following the award of the Nobel Peace Prize to its founder, Mohammed Yunus. A cursory view of its website and records show that the institution has provided lots of small loans to a lot of people in Bangladesh while its equivalents are intensifying their efforts all over the globe.

This naturally leads to the issue that James Surowiecki addresses intelligently in the New Yorker. His article questions the degree to which the faith in micro-finance and micro-loans is justified especially regarding its ability to effectively tackle mass poverty. Among the difficulties are that the borrowed sums are often too small to facilitate meaningful business expansion in addition to the tendency for the sums to used to respond to emergencies. His clear answer is that the character of the manner in which the loans are provided and managed naturally limits the amount of income growth that comes from them. Citing an article by Karol Boudreaux and Tyler Cowen which appeared in the Wilson Quarterly.

In sum, micro-finance and micro-loans is an extremely useful factor but what most indigent people require is employment. Provision of employment should be the central concern of the governments of most low-income countries. Entrepreneurship is glorious but highly successful firms are most efficient creators of employment than are small enterprises.