The Micromagic of Microcredit

After decades of failure, the world’s aid organizations seem to think they have at last found a winning idea: Microcredit. The United Nations declared 2005 the “International Year of Microcredit,” and former Secretary-General Kofi Annan claimed that providing microloans to help the poor launch small businesses recognizes the poor's local ventures “are the solution, not the problem." But can microcredit achieve the massive changes its proponents claim? Is it the solution to poverty in the developing world, or something more ­modest—­a way to empower the poor, particularly poor women, with some control over their lives and their ­assets?

Conversations with actual microcredit recipients reveal a little-known fact: many of the loans are not used for business-specific investments, and the requirements for many loans keep out a good number of potential entrepreneurs. However, with microcredit, life becomes more bearable and easier to manage. The improvements may not show up as an explicit return on investment, but the benefits are very real. Progress is not the natural state of humankind, and microcredit is important even when it does nothing more than stave-off decline.

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Citation (Chicago-Style)

Boudreaux, Karol and Tyler Cowen. "The Micromagic of Microcredit," Wilson Quarterly, Winter 2008.