Thursday, July 23, 2009

Microcredit Woes

The Goldin Institue produced this report on microcredit in Bangladesh, and I found this paragraph particularly interesting (p. 4):
While many microcredit agencies express a desire to subvert the often exploitative traditional moneylending systems, evidence from our research shows that in many cases microcredit has achieved exactly the opposite. Numerous respondents reported being forced to take loans from traditional moneylenders in order to make their microcredit loan payments on time. Indeed, some respondents even suggest that these loans are preferable to microcredit loans because they are more flexible. As one observed, " I think taking loans from local money lenders is better than from NGOs because there is no obligation to pay a weekly installment. It is an easy system. They excuse us in times of crisis. They don't insult us. But NGOs never excuse us in any situation. We are tortured both physically and mentally. We remain bound to pay installments in time at any cost." In this way, the traditional moneylending systems have actually been bolstered by the development of microcredit in the village due to a growing dependence on credit from all sources. (emphasis from original author.)
This supports my concern that NGOs tend to have a strange collective group think against the competitive market process. The traditional private moneylenders are seen as inherently exploitive, and even after observing evidence to the contrary they remain disappointed that they exist. I suspose in their defense this may not be specific to NGOs, as payday lenders in the U.S. seem to suffer the same image problems.

1 comment:

kanagasabai said...

If the micro credit goes in building value addtion chain it would be a delight. In India, a wemen group is reported to build their qarry with the support of local government involvement. It would be nice that Corporate Houses should create some margin for the micro credit groups.