Archive - Mar 17, 2008
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Toxic Vegetables for Sale
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The Limits of Microfinance
James Surowiecki's commentary in The New Yorker this week offers a sobering reassessment of microfinance. His thesis is not that microloans are a bad thing, just that, if their goal is "to make poor countries richer," currently they aim at the wrong segment of the economy.
Surowiecki observes that often "Microloans are often used to “smooth consumption” — tiding a borrower over in times of crisis." This is much the same role that revolving credit like credit cards play in more mature economies. While this type of bridging consumer credit is tremendously important to the stability of a single household, it is isn't the type of credit that leads to the creation of jobs, something most developing nations are in dire need of.
"In high-income countries," Surowiecki writes, "more than sixty per cent of all jobs [are created by companies] bigger than a fruit stand but smaller than a Fortune 1000 corporation. It is this middle tier of small-to-medium-sized enterprises that a nation must cultivate if it is shooting for long-term economic growth."
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