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Show HINCKLEY JOURNAL OF POLITICS SPRING 2001 has encouraged borrowers to vote. Today, many loan recipients are campaigning and winning elections themselves (Mann 1999). Interestingly, studies show that microlending also helps those who are ineligible or unwilling to take loans. At the village level, when microcredit is introduced, it opens up the job market, decreasing the number of eligible workers, and thereby potentially increasing the wages of the non-self-employed (borrowers). These programs significantly increase village level production, as well as household income. Household expenditures also increase, and in one case, the use of microcredit decreased the amount of extremely poor persons in a community from 33 percent to ten percent (Khandker 1998). THE LIMITATIONS OF MICROFINANCE Up to this point, it may seem that microfinance is a key solution to many of the world's problems. It is not. At least, it is not if used alone. Even the most ardent supporters of micro-credit admit that it is not a panacea, but rather a key element in the fight against poverty (Serageldin and Yunus 2000). In fact, many even doubt that the microcredit system is even the best alternative for helping the poorest of the poor. One recent study examined the viability of the poorest people to use credit if given to them. It found that in general, without any land, or other assets, it was irrelevant if they were given money. Why buy a cow when there is no where to graze it? The study concluded saying that the better off the borrower is, the more effective use of the loan; while moderately poor people did well with the loan, the extremely poor, in some cases, were worse off. For these people, business failure meant bankruptcy, seizure of assets, and in a few cases, suicide due to peer pressure (Hulme and Mosely 1996). Another study found that many microfinance organizations slowly moved away from helping the poorest people to helping those only moderately poor (Tomlinson 1995). Often, what benefits the poorest even more than credit is the opportunity to save. Traditionally, this is not guaranteed because of the formal business practices of most banks. Informal savings accounts are especially valuable to the poor because it gives them a place to put their money. For many poor, illiteracy and other issues keep them from creating a savings account at a formal banking institution. A great example of these informal accounts is Bank Rakyat Indonesia (BRI). In December of 1993, BRI had $2.1 billion in individual savings accounts, by December 1995, there was over $14-5 million in fully accessible savings accounts (Robinson 1994). Some microfinance institutions, such as Grameen Bank, mandate savings as a precondition to receiving a loan (Khandker 1998). Finally, about eight percent of the poorest people in the world live in developed countries. Many of these countries, including the United States, have experimented with micro-finance. In general, the U.S. does not possess key empirical aspects that would make microcredit work. First, a majority of its workforce is not self-employed. Developing countries have a very large amount of people that are self-employed, while developed states tend to larger service sectors. Second, rules regarding banking and lending eliminate the possibility of an informal economy. Without this informality, the poorest people in developing countries are dependent (or at least more dependent) upon others to fully understand the ramifications of their actions. Third, in the developing world, the main deterrent for most people is a lack of credit. In the U.S., just about anyone can get a loan. Even if one cannot, the primary issue is typically not money but a lack of skills (Buntin 1997). There are examples of microcredit in the U.S., many of which have failed. One example of this is the Good Faith Fund, which was established to function like the Grameen Bank. While two million people joined the Grameen Bank, just fifty joined Good Faith Fund (one of the first microcredit funds in the U.S.); and while the Grameen Bank had a two percent default rate, the Good Faith Fund had a 40 percent default rate (Buntin 1997). CONCLUSIONS Microcredit, as a concept, is perhaps the most exciting concept in applied international development in the last 30 years. Within the context of the neo-liberal agenda, microfinancing fits in perfectly with globalization while maintaining the flexibility necessary to make it feasible anywhere in the developing world. However, while it is very promising, microfinance has limitations, and is not the cure-all for poverty. Incorporating different types of aid, in the form of training, access to land, and technology all depend greatly on the public sector. Microfinance institutions show the best results when they work hand in hand with governments, both developed and developing (United Nations 1998). Still, with organizations like US AID giving a larger percent of its budget to microcredit programs, while maintaining others, international development aid is going the right direction. The most valuable aspect of microcredit monies, as a form of aid, is that they go directly to the people that need them. There is an effective system of loan repayment, usually resulting in a higher ratio than exists with commercial banks. This happens because the people receiving the loans feel a sense of control over their own lives, and are given a form of social power. Additionally, the ability of microfinance institutions to acculturate and become sustainable is essential to helping the people served. Although microcredit may not reach the poorest of the poor, it does help alleviate the plight of many moderately poor people in the developing world. Stories like Rajamma's are not uncommon in the halls of Grameen Bank or the BRI. In addition, the social benefits of microcredit extend beyond just those who borrow into the entire community. Microcredit is 25 |
