Via NextBillion ally Reuben Abraham, I was pointed to James Surowiecki's recent article, What Microloans Miss in The New Yorker.

Surowiecki points out that while microfinance does a tremendous amount of good, there are also real limits to what it can accomplish. With over $25 billions of loans and websites to lend to the poor, microloans are increasingly being viewed as a panacea for all issues of poverty.

An excerpt:

The idealized view of microfinance is that budding entrepreneurs use the loans to start and grow businesses—expanding operations, boosting inventory, and so on. The reality is more complicated. Microloans are often used to “smooth consumption”—tiding a borrower over in times of crisis. They’re also, as Karol Boudreaux and Tyler Cowen point out in a recent paper, often used for non-business expenses, such as a child’s education. It’s less common to find them used to fund major business expansions or to hire new employees. In part, this is because the loans can be very small—frequently as little as fifty or a hundred dollars—and generally come with very high interest rates, often above thirty or forty per cent. But it’s also because most microbusinesses aren’t looking to take on more workers. The vast majority have only one paid employee: the owner.

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Today's main headline in the online version of El Tiempo, Colombia's largest newspaper, reads as follows: "Government abandonment and malnutrition ramble in Chocó, where 17 children starved to death"

In a couple of hours, another headline will replace Chocó's tragedy and few will remember these events and, more importantly, acknowledge the pressing challenge that they represent. I can't let these news go by without at least sharing my thoughts with a community that discusses precisely what is needed in such remote and often forgotten areas: active involvement of the private sector to build creative and sustainable solutions to the urgent needs of the poor.

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