Microcredit was never a panacea. Just like nothing is ever a panacea.
But it strikes me that microcredit proliferated the way it did over the last thirty years—at least on the supply-side. The international development community rapidly mobilized and credit flowed. Muhammed Yunus and Grameen Bank were awarded the Nobel Peace prize in 2006 for their work being the so-called “bankers to the poor.”
A recent New Yorker article, Moving Beyond Microcredit, points out that in many situations loan recipients are actually already in the middle-class and are not “poor” relative to local standards. This is despite the proverbial microcredit story that puts the poor woman as protagonist.
With the lack of uptake of microcredit services among the poor, the article suggests that we—as part of the international development community— never quite stopped to ask:
“What do poor people really want?”
The article, featuring interviews with at Makola market in Accra, Ghana, shows that when you talk to the poor, they often find the microcredit option far too expensive.
Many would first borrow money from family or participate in savings groups in which, each month, members contribute to a common pot of money and the sum is given to a different person each time. Others participate in a small-scale saving scheme called susu.
In other words, relative to existing local institutions, the poor often cannot afford microcredit. The interest rates are too high.
In their experimental evaluation of microcredit in six countries, the authors indicate that a challenge for the study design was the “modest take-up rates of credit among (prospective) microentrepreneurs.” (This didn’t seem to keep them from publishing a paper though).
They continue with, “If microcredit’s promise was increasing freedom of choice it would be closer to delivering on it.” But what kind of choice is one you can’t afford?
Look, it’s not that microcredit is a bad idea. Its results are mixed but certainly it’s helped many people around the world.
What the story of microcredit in Accra, Ghana tells us, though, is that it behooves us to get feedback from constituents (beneficiaries)—to understand their world and their desires a bit better — before launching the next silver-bullet solution. Just because we offer something doesn’t mean that poor people want it.