Wednesday, March 02, 2011

The death of microcredit?

Over recent months, I've watched with some disappointment as criticism of microcredit schemes has mounted and the awful pendulum of popularity has swung away from what was, until recently, the 'big thing' in charity and development. For those who have put their hearts and souls into developing microcredit for the poor, this must be a most dispiriting time.

These two articles appeared in the New York Times during January; and a simple online search reveals other such criticisms appearing from time to time over the past year.

Microcredit pioneer faces an enquiry...

Microlenders, honored with nobel, are struggling

Just a few years ago, the Grameen Bank and similar schemes around the world were the darling of development. Now, it seems, they are not. Social enterprises have taken their place.

How has this happened? Was microcredit really a bad idea all along?

My own take on this - and others may have different insights - is that microcredit went from being a good, concrete practice to a romanticised notion that could never live up to its ideal. Yunus, arguably the 'father' of microcredit, never saw his scheme as being the one and only solution to world poverty, but eventually this became the common perception of it. Even within Blue Dragon, over several years I received many emails from people and some big organisations asking us if we were interested in starting microcredit programs. As much as I like microcredit, it has never been a significant part of our work, although we've certainly given loans and helped families set up their own businesses.

The problem seems to be, though, that too many people came to think that microcredit was the answer to everything. And when they came to see that it wasn't, they believed it had failed. They were judging microcredit against imaginary criteria.

And now, to use the cliche, the baby is being thrown out with the bathwater.

Donor attention has turned to social enterprises.

Again, social enterprises are great; but they are not the answer to everything. Those involved in forming this new field have never claimed that they could end all poverty. They help certain types of people in specific instances, and they can do an excellent job at providing training and employment.

I fear, though, that perception is now shifting into that same fairytale view that clouded microcredit schemes. Countless institutional donors will only fund the creation of social enterprises, to the exclusion of everything else. People are again seeing them as being a cure-all; an excellent idea is in danger of becoming a short lived fad. When the media starts noticing that social enterprises are imperfect, will they turn on them, too, and condemn them as failures?


Haiko said...

interesting article.
> I think that it can work, but sometimes people think they have found a
> shortcut and a magic solution and then it turns out to be soemthing that
> still requires hard work and good attention and all that....
> Let's be honest, don't we all hope to find that magic solution :)

I know I do :-)

Ta Ngoc said...

Aneel Karnani, a professor of Stanford University, analyzed and proved in her research that "if societies are serious about helping the poorest of the poor, they should stop investing in microfinance and start supporting large-labour intensive industries". Karnani argued” China, Vietnam and South Korea have significantly reduced poverty in recent years with little micro- credit activities while Bangladesh, Bolivia and Indonesia have not been successful at reducing poverty despite influx of micro credit".
What made people fond of giving for micro credit projects? In my opinion, Organizations will feel good when they give a "little things" for the poor. They suppose that these are enough for the poor. They want to see the "woman sell little egg baskets" at the market while they believe in "economic of scale". They encouraged the illiterate poor women to have “business ideas” while they believe in the “business plans” made by number of qualified consultants.
Now, people are excited with social enterprise model? In my opinion, social enterprise is the failed business model because of following reasons:
Firstly, the purpose of business is maximized the profits. When you earn profits, they will become your assets. You have rights to use those assets for yourself, charity or whatever you want to. You do not need the endowment or funding to do charity or social works.
Secondly, social enterprise does not cost effective. You can do more things with the same amount spend for charity purposes. For example, you support for motorbike repair shop for 10 kids. Your money will be used for administration fees, rent, salary, travel, bonus for staffs and so on. As a wise investor, you will know what is the return of investment will be if you send these kids to vocational school or pay the training fees directly for the shops.
Thirdly and honestly, you start social enterprise because you do not want to get risks from losing your capital. It is dedicated that your business idea cannot generate money. Otherwise, you will make money by yourself or someone will buy your idea to make money.
There is no magic solution for such complicated issues like development. However, we should see every solution as the “possible” choices instead of “absolute” choices.

Michael Brosowski said...
This comment has been removed by the author.
Michael Brosowski said...

Haiko - you're right that we all hope to find a magic solution! But I don't think that the 'inventors' of microcredit ever claimed that it was one. It's sad to now see it being criticised for being something that nobody ever intended it to be.

Ta Ngoc - you're quite harsh in your judgments, although I do wonder if you're right that we like to think giving just a little is enough to end poverty. As with microfinance, the social entrepeneurship model has lots of good - we need to stick to that core and not let it get 'distracted' and diluted!