Do Microfinance really alleviate poverty?

Microfinance institutions exists to help the world's poor afford basic human services, such as education and health care, as well as to start their own business.

But do microfinance really alleviate poverty?

I think that high-interest microloans create unfair debt burdens that exploit the poor while doing little to help them achieve self-sufficiency. Incredible levels of debt are accrued by impoverished individuals when they accept high-interest loans from microlenders.

I have read many stories about women who receive microloans sometimes must repay the debt even when family members have robbed them of the money. Critics of microcredit assert that large numbers of microfinance "borrowers never get out of debt, or that they misuse loans to buy consumer goods.

Thomas Dichter, a 20-year industry veteran, became disillusioned with microfinance and wrote that poverty lending is not good for investors or borrowers. "Classical microcredit start-ups are not working," says Dichter. "There's a feel-good factor for lenders, but no solid evidence that [microcredit] makes a difference, either in developing the economy or reducing poverty."

The poorest people face high payments but experience few-quality-of life improvements. For example, Anita Edward, a Nigerian salon owner who has borrowed money from LAPO three times, has said that, although LAPO charges less interest than other MFIs, and will help her when banks cannot (or will not), she resents the loans' forced savings component. In one instance, she had to keep $100 of a $666 loan in a savings account while paying interest on the full amount. She told the New York Times, "That is not O.K. by me. It is not fair. They should give you the full money."

I think that microfinance should be regulated and reformed. It needs oversight and transparency. Data are most of the time not currently availaible to the public. More reliable data are needed about the number of microfinance institutions worldwide, how much money they lend to borrowers and how well their borrowers do.

The debt burden placed on the poor by microloans causes a great social and economic suffering.


Microfinance." Issues & Controversies. Facts On File News Services, 14 June 2010. Web. 19 June 2010. .