Tag Archives: microlending

The dark side of micro-credit.

The flaws inherent in micro-lending are now becoming apparent. Recent articles in The New York Times (“Indian Microcredit Faces Collapse from Defaults”) and Good Business report the sad case of India where numerous borrowers, unable to repay are reported to have committed suicide.

Now it becomes all too obvious, Quoting from the Good Business report:

Merely offering credit to more people doesn’t lead to poverty alleviation. It is a service that the poor should have access to, just like the rest of us. But, it is not a game-changer; it is one tool in the poverty alleviation toolbox.

Micro-credit allows poor people to play the game, but that game is still rigged against the poor and in favor of the lender. Interest is still interest, and micro-credit lures the poor into the debt trap–equal opportunity to play a losing game. Yes, a few may win, just as a few win at the casino, but in the end the “house” wins at the expense of the clients. Poverty alleviation requires, first of all, a fair game, sharing both the rewards and the risks of an enterprise. Revenue sharing would be a better approach than interest (usury) on debt. — t.h.g.