The Pros And Cons Of Microfinance

Move aside sliced bread and perforated toilet paper, microfinance is coming through.

Does that sound a little dramatic? I thought so, but so are claims that microfinance is the silver bullet for poverty, the kryptonite for hunger, and the solution for one of the most complex issues humanity faces. Every year, the western world donates billions of dollars to microfinance initiatives. American families donate 20, 30, 100 dollars a month, yearning for that feeling of security that they have done something truly impactful for a family in need halfway across the world. However, in reality, it is apparent that although microfinance has its success stories, largely microfinancing has been giving false hope to the hopeless and wasting billions of

Whether it’s a farmer who got a loan and then got rain for his crops at the most opportune time or the young woman who bought pots for her family to cook and benefitted from the cheaper prices due to the surplus of the farmers crop. It is very difficult to prove causation, while it is much more clear to present evidence that microfinance does in fact incur debt traps and false hope for millions of families.

At the end of the day, it is not realistic to believe that a majority of funds loaned result in successful outcomes. Small businesses in America have a failure rate of over 50 percent after two years, so it is irresponsible to use funds for the same ventures in third world countries.

By now, I have fully prosecuted my case against microfinance, and you’re probably wondering, “What did microfinance ever do to this guy?” Well, my answer would be, I have nothing against microfinance, it was an innovative idea that had the best of intentions, however, as I have argued, it just does not work. Personally, I have nothing to gain from writing this editorial against microfinance, but millions of impoverished people around the world do. Millions, who could use our billions in a much more effective way.

That being said, there are plenty of alternatives to microfinance, many of which I would be glad to endorse as effective means of

Take for example China or Vietnam, two countries who have had minimal microfinance activity, yet they have been steadily decreasing poverty rates for years. What is happening in those countries is the growth of the private sector, which has created sustainable development through jobs. They have brought globalization to their countries by bringing people out of rural areas with extremely limited opportunities to urban centers with plenty of opportunities and higher