
The Power of a Dollar: Microcredit exploits the poor - pmcpinto
https://www.jacobinmag.com/2015/11/microcredit-muhammad-yunus-bono-clinton-foundation-global-poverty-entrepreneurial-charity/?mod=e2this
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nickff
There have been many valid criticisms of microcredit, but this article is not
one of them, chiefly because it falls victim to a few logical fallacies and
faulty assertions.

This piece assumes that the poor people using microcredit are doing so to help
acquire goods for trade (or another similar), and since their customer base
will gain no new wealth, the goods will go unused. Much of the investments
that microcredit loans are used for are things like metal roofs (which are far
superior to and less maintenance intensive than thatched roofs), and simple
tools which improve productivity, thus allowing them to engage in trade or
other activites which help to improve their lifestyle. We should remember that
just because someone is a poor farmer now does not mean they have to continue
being just a farmer with low output; they could get a second job, improve
their farm's output, or go out to sell their goods to another village if they
had the time and resources; we should not dedicate all aid resources to
keeping subsistence farmers tethered to the same farms with the same tools,
but slightly improving their plight.

The article also seems to assume that the bad motives (mainly greed) of some
microcredit lenders will lead to bad results, and that lending money to poor
people is somehow immoral (possibly due to something like the Copenhagen
interpretation of ethics), and that this immorality makes the loan bad.

One fact I found very notable and surprising, though not mentioned in this
article, is that a great deal of microcredit is actually used as a savings
commitment device (as many people have negative effective interest rates for
various reasons), so it allows the borrower to make larger capital
expenditures than they would otherwise have been able to, because they had
issues preventing them from saving up.

~~~
conistonwater
> _There have been many valid criticisms of microcredit, but this article is
> not one of them..._

I agree.

> _It assumes that the poor people using microcredit are doing so to help
> acquire goods for trade..._

I don't think it does. I find it hard to figure out what his actual argument
is (beyond cheap innuendo about ideologies), but he seems to not assume that,
e.g., _" Yunus believed that the poor, and especially women, could establish
an informal microenterprise and then sell basic goods and services to other
poor people in the community."_

If I understand his argument correctly (including the way he mis-invokes Say's
law), he seems to be saying that lending to people to start new enterprises is
not a worthwhile activity because the new small enterprises compete with
existing small enterprises, in this competition some enterprises go bankrupt
(because he says demand for the produced goods is fixed, what?!), thus new
enterprises enabled by this lending just displace other enterprises, producing
no net benefit to society.

But isn't that just straight wrong? His argument doesn't even seem specific to
micro-lending, it reads like an argument against lending and/or
entrepreneurship in general.

He also invokes "profitability" as a bad thing, which is weird since why else
would anyone commit capital to this. On the other hand, non-profitability and
charity, he says, is also bad — _No need for solidarity movements and active
resistance to exploitation and unfair conditions imposed on developing
countries — just send a donation to Kiva and the poor can take care of
themselves!_

I know there are questions about how effective microfinance is in practice
(cursory search gave me
[http://www.nber.org/papers/w18950](http://www.nber.org/papers/w18950)), but
this just seems like a bad argument. Innuendo about "neoliberalism" doesn't
help the article either.

~~~
makomk
You're right, many of his arguments do indeed apply to lending to new small
enterprises in general, and he actually references a UK working paper making a
similar argument about small business funding here. This isn't an argument
against lending and entrepreneurship in general; there's strong arguments for
lending to existing businesses to ensure they don't run into cashflow issues
(if profitable businesses go insolvent it's costly and disruptive), and to
allow them to operate more efficiently since this means they can offer the
same products for less.

Also, it should be obvious why the immense profitability of microlending
institutions is an issue if you think about what that means. It's effectively
a transfer of cash from the poorest sectors of society to wealthy investors,
and with no countervailing transfer in the opposite direction - because those
microbusinesses are selling to other people like them, not wealthy investors -
that just makes the poor poorer.

------
n00b101
"Microdebt" clearly does not solve poverty. This idea has always had its
critics. It is distasteful at best to be a money lender to the poorest strata
of humanity. Common wisdom tells us as much.

But it is also common wisdom that to "teach a man/woman to fish" is better
than to just "give a fish." As an entrepreneur I do believe in the unique
ability of entrepreneurship to allow people to raise themselves above and out
of their present circumstances.

Perhaps "microequity" financing can succeed where "microdebt" financing has
failed? Or maybe "micro-crowdsourcing?" How about a Kickstarter for African
basket weavers? Would you pay $5+shipping for a hand made African/Asian/Etc
cultural craftwork? Would you pay $50 if you saw the craftperson's
story/picture/pitch video/poor family? Crowdsourcing has the benefit of
solving serious supply chain and financing failure risks for entrepreneurs,
it's basically pre-ordering and building product on the customer's expense.
Perhaps the solution is a combination of microdebt, microequity and
microcrowdsource?

I don't mean to disparage anyone, but perhaps we could all benefit from some
young grads with Silicon Valley startup fever focusing technology and
innovation on the poorer parts of the world instead of focusing on delivery-
based services in rich "lifestyle bubble" cities.

~~~
zzalpha
_" Microdebt" clearly does not solve poverty. This idea has always had its
critics. It is distasteful at best to be a money lender to the poorest strata
of humanity. Common wisdom tells us as much._

I couldn't care less about your unsupported "common wisdom".

Show me data.

~~~
GFK_of_xmaspast
Are you aware of the difference between an empirical claim and a normative
claim?

