Anecdoted

Re-posted from the Kiva Fellows Blog.

Having read Meg’s excellent blog post “Bad Roads, Interest Rates, and MFI Sustainability” and the ensuing comments from Kiva lenders, I admit that I was rather baffled. Particularly by comments that varied upon the theme of: “In the U.S. you can get loans for ~8%! You can get credit for 18% interest, which we find high and oppressive! So how can MFIs charge 36% interest rates on loans to their poor clients, it is usurious, it can’t be justified…” so on and so forth.

I believe that if you were to plunk a U.S. bank into a developing country with limited infrastructure, where most clients don’t have ready access to the internet that lets them transfer money from one bank account to another with the click of a mouse, where you have to ask employees to constantly risk their personal safety by carrying huge amounts of cash over uncertain roads and territories, those banks would not be charging 8% interest or even 18% interest, but a much, much higher rate.

Still not convinced? Let’s try a quick breakdown of some actual numbers -

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If you follow me via @Anecdoted on Twitter, you’ll notice that I share quite a few articles criticizing microfinance, far more than ones that praise. Despite this evidence to the contrary, I do believe that microfinance “works” – but not in the “silver bullet” transformative way that most people often associate with microfinance and poverty alleviation.

As a Kiva Fellow, I’ve seen the successes. I’ve visited businesses and interviewed clients who have succeeded because of microfinance. These borrowers were able to grow their businesses that not only provide the owners with a comfortable living, but also provide additional livelihoods for hired employees. Abhijit Vinayak Banerjee and Esther Duflo of M.I.T, and Dean Karlan of Yale wrote in their New York Times op-ed “The Role of Microfinance,” microcredit is generally viewed as either “transformative” successes, or “ruinous” failures. Having seen the former, I believe that much of the latter is caused by over-high expectations – that poor people all over the world would be lifted out of poverty through lending. When recent research failed to support this concept of global poverty alleviation, people started to lose faith in microfinance.

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Ok, I admit that I mainly wanted to practice writing a “catchy” title for this post. I’m sure that people who know me are thinking something along the lines of “but you’re not even Christian!” And I’m not in the U.S. right now either. But I did just read a fantastic TIME article about how Christian church groups are standing up against the insane commercialization of Christmas in the States, offering some proof that this title might not be as outrageous as it appeared at first glance.

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