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Poverty

Microlending is overrated

dodgy-figuresUntil recently, micro-enterprise loans were the hottest thing in global development, and the universal panacea to poverty. Now, however, the Nobel Prize-winning guru of microfinance, Muhammad Yunus, has been fired from his position as managing director of the Grameen Bank which he founded, the microfinance industry in India is under siege, and people feel free to voice their criticisms of what was once sacrosanct.

Micro-lending institutions cannot operate in a profitable, sustainable manner unless they charge high interest rates and take steps to ensure high repayment rates. The economics of a micro-lending business run for profit are identical to those of a loan shark, and the difference between the two is often more a matter of public relations than reality. Micro-lending institutions frequently claim very high rates of repayment, which necessarily means that they exert enormous pressure on borrowers to make the repayments.

It is possible for someone to borrow at high interest rates and still make a profit, if the person has access to a business opportunity which offers a high rate of return. However, the majority of people do not have the skills or the access to such opportunities. To improve their lot, most people need decent jobs, not to be set up for failure by loan sharks masquerading as benevolent community development workers.