Evaluating Microfinance

April 2010 • Volume 4, Issue 4
Do small loans for poor entrepreneurs help end poverty?
By Sarah Glazer

Introduction

A small loan transforms a one-time street peddler into one with wholesale operations (AP Photo/Jose Silva Pinto)
A small loan from a microcredit bank in Luanda, Angola, enabled one-time street peddler Ana Helena Domingos to buy goods in bulk and launch a now-flourishing wholesale operation, doubling her income in 10 months. (AP Photo/Jose Silva Pinto)

Since the 1980s, millions of impoverished people around the world without access to banks have been able to take out tiny loans to start businesses. Nobel Prize-winning economist Muhammad Yunus, who established the first microfinance bank in Bangladesh and launched the modern microlending movement, claims microloans have lifted millions — especially women — out of poverty and spurred economic growth. But recent studies cast doubt on microcredit's effectiveness. Borrowers have been saddled with multiple loans at exorbitant interest rates, often having to borrow from loan sharks to make their microcredit payments. Economists fear overindebtedness could make borrowers even poorer and that a possible credit bubble could burst. Others worry that in recent years, for-profit investors have swarmed to the field, attracted by high returns on investment. Some governments have capped microlenders' interest rates, but the industry hopes to forestall regulation by adopting voluntary consumer protection measures.

ISSUE TRACKER for Related Reports
World Trade
Apr. 2010  Evaluating Microfinance
Sep. 2009  Future of Globalization
Jul. 2009  Fixing Capitalism
May 18, 2007  Fair Trade Labeling
Sep. 28, 2001  Globalization Backlash
Jun. 09, 2000  World Trade
Jan. 29, 1999  International Monetary Fund
May 29, 1987  Third World Debt
Jun. 22, 1984  Bretton Woods Forty Years Later
Jan. 21, 1983  World Debt Crisis
Apr. 18, 1975  World Financing Under Stress
Sep. 08, 1971  World Money Crisis
Jul. 30, 1969  International Development Financing
Mar. 11, 1964  World Trade Parleys
May 23, 1962  Farm Products in World Trade
Apr. 27, 1945  Bretton Woods Agreements
Oct. 05, 1932  World Trade, Tariffs, and War Debts
BROWSE RELATED TOPICS:
Financial Institutions