August, 2008

Managing Expectations for Microcredit

Key materials

Microcredit offers real benefits to people in developing countries. It can help educate children and offers the poor an alternative to moneylenders, instruction in formal financial systems, and a strategy for saving money. Microcredit makes life more bearable and easier to manage, a benefit people in the developed world should not underestimate.

However, microcredit’s supporters overestimate its benefits. While some borrowers use microcredit loans to start business, most borrowers use the loans to keep a current business in operation. Also, few borrowers are able to turn their small businesses into large-scale firms, which would provide jobs for other poor people. Rather than attempting to use microcredit as the magical "fix-all" for development, its supporters should instead focus on the things which it does well and learn from its applications as to what is truly beneficial for the poor.

 

Citation (Chicago-Style)

Cowen, Tyler, Karol Boudreaux and Daniel Sacks. "Managing Expectations for Microcredit", Mercatus On Policy, Arlington, VA: Mercatus Center at George Mason University, 2008.