Microfinance and Nobel Prizes

I was going to do a brief post congratulating Muhammad Yunus for his winning of the Nobel Prize and mentioning a similar great Austrailan initiative of a similar vintage which you can donate to – Opportunity International. If I could do one tiny fraction of the good these people have done I could die happy.
Well this is that post I contemplated – not much to it other than the congratulations, but it was eventually prompted by Guy Rundle’s story in Crikey today where he draws attention to Helen Hughes’ views on micro finance.

This is a staccato comment of hers in a larger interview and so it presumably doesn’t represent all her thoughts on the phenomenon. But here was I and a few other people thinking microfinance was a miracle of market extension. Apparently not.

GL: You have been very critical of UNDP’s Human Development Reports. Why would an organisation like that put out such reports that by all accounts are misleading and simplistic?

HH: Only because its staff and consultants want continuing financial support to maintain their lifestyles. A large body of research, starting with Peter Bauer’s, has clearly demonstrated that aid flows have made little contribution to development and have often been counterproductive. Many UNDP projects are clearly counterproductive.

Micro finance is an example. It operates on the premise that small loans, not available commercially, ’empower’ poor people by giving them, following Marx, access to ‘the means of production’. Micro finance loans are made to members of groups chosen by lot. All borrowers have to contribute savings, but wait to take out loans until the initial borrowers’ loans are repaid. Micro finance is the very antithesis of the market system. The pace is set by the least able borrowers rather than encouraging the most entrepreneurial ones. Loans are made at semi-commercial rates, that is with minor subsidies, but the bureaucrats that administer the systems are subsidised.

Dear oh dear.

Rundle seems to dispatch this one to the boundary fairly crisply for my money.

Don’t you love the Marx bit? Actually all loans give access to the means of production. We call this “capital” and I can send Hughes some leaflets on it if she’s confused.

It’s true that the UNDP has looked round for ways of subsidising micro-finance – a damn site better thing to do than subsidising lots of other things, but there’s plenty of micro-finance that’s not subsidised – like Grameen itself – where default rates are lower than traditional commercial finance.

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Amused
Amused
15 years ago

HH’s problem is that the scheme lacks the proper ‘individualised’ rigour that would be a daily reminder to the indigent that they, and only they, are both responsible for their existing position, and for their own salvation. I love the bit about the subsidisation of the people who administer the schemes. Rightyo then. All you scrounging Bangladeshi washerwomen who want a loan to buy a machine to help you wash more clothes more easily-if you want to bludge your way through a 20 hour day, pay someone the market rate to design a scheme that will allow you to borrow the money. This kind of thing just holds people back!

But she needn’t worry. As I understand the situation, while there are thousands of micro loans, the schemes apparently have not dimmed the enthusiasm of the rich for the commercial interest rates they pay to ensure they can buy cars, laptops and real estate. So that’s all right then, I think.