A New Kind of Sub-prime Loans

To the extent that it allows the lending of minor sums to individuals with low income and who necessarily lack a credit history to acquire credit for entrepreneurship, micro-credit may be comparable to sub-prime loans. Daniel Gross argues for an extension of micro-credit to the citizens of low income countries out of the view that the Grameen Bank concept of micro-loans is an effective poverty buster.

While the piece argues that micro-lending is not a panacea, it also states that with infusion of new technologies and proper financial management principles, micro-loans are a way out of poverty. To my mind, micro-loans may be useful but their transformative power may be overstated because of the limits that thye place on the businesses that individuals may pursue. In addition, as an earlier blog post stated, most of the recipients engage in similar businesses that are expanded through loans but that incomes generated from them are often enough to live slightly above the poverty line.