A Note of Caution on Microfinance

John Paul — Fri, 31 Mar 2006 19:10:33 -0500

With the Year of Microcredit behind us, and investments in the sector accelerating, rarely do you hear criticisms of the much lauded poverty alleviation tool. One notable exception is a recent piece by Thomas Dichter, long-time practitioner in the international development industry and author of Despite Good Intentions: Why Development Assistance to the Third World Has Failed.

He cautions that “microcredit is an almost perfect case of a phenomenon that has come to characterize much of development assistance - a widening gap between reality and propaganda.”

Dichter argues that in the rush to scale up microfinance offerings, many newcomers to the field might actually be doing more harm than good. He points out a number of flaws with the current approach to microfinance, cautioning that there is little historical evidence for the developmental role of credit to the poor; that there has been little rigorous evaluation of the overall benefits of microfinance to a person’s quality of life; and that the poorest of the poor are by definition the ones who "need" credit the most, but can do the least with it.

NextBillion.net - Development Through Enterprise - A Note of Caution on Microfinance - Comments

A Note of Caution on Microfinance