Karnani: Microfinance Misses Its Mark

Rob Katz — Wed, 06 Jun 2007 08:36:00 -0400

Aneel Karnani, the Michigan strategy professor and controversial author of "Mirage at the Bottom of the Pyramid", has a new article in the Summer edition of the Stanford Social Innovation Review. "Microfinance Misses Its Mark" examines some of the failures of microfinance, and argues that creating more jobs is the best way to alleviate poverty -- not simply giving loans or financial services.

The article makes some strong points, and is a worthwhile read. After an initial read, I wonder whether it is fair to juxtapose job creation with microcredit. To be sure, larger scale businesses create more salaried jobs, but there may have to be an intermediary period between "few jobs" at the BOP and equilibrium, where larger-scale businesses employ scores of people.

Economic history may lend some insight here. In the U.S., middle class growth occurred only after an entire generation (or two, or three) worked as self-employed farmers, tailors, merchants, craftsmen, etc. Industrialization - and more efficient, larger firms - came later. I'm not saying that low-income countries must follow the U.S. path, nor do I argue that there weren't external factors at play in the economic history of the United States. I simply wonder whether it's fair to equate microcredit with "no jobs" and larger business with "yes jobs."

In any case, read the article. No matter where you come out with regard to your opinion, it's a good read and well done.

(Via Origo)

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Karnani: Microfinance Misses Its Mark