When Microcredit Won't Do

[OneGrassRoot]

Whenever I see articles discussing new ways of spurring industry and entrepreneurship in other countries, I always wonder why we don't implement more of these ideas here? We're not "above" this. More and more live in poverty by US standards (no need to debate levels of poverty here, please ;)). We need to be more innovative and creative HERE. NOW.

:hi:


January 31, 2011, 9:15 pm
When Microcredit Won’t Do
By TINA ROSENBERG


If you asked poverty experts to name the single most significant new concept in the field in the last few decades, chances are they would say microcredit. Microcredit is the lending of very small amounts of money to very poor people to help them invest in things that have the potential to bring income later on — a loan of $50 to buy a sewing machine to make clothes, for instance, or piglets to raise and sell. It reaches nearly 100 million clients in more than 100 countries.

One of the reasons that microcredit is so exciting is that its benefits can go beyond the women (and they are almost all women) who borrow money. Not only does their increase in income add to the economy of the whole village, they can start businesses that sell needed goods and services to their neighbors. After all, much of rural development involves bringing to villages the same things that city dwellers take for granted. For example, a borrower can use her loan to buy a cell phone and charge her neighbors for calls and messages. She has a new business and her neighbors have a link to the outside world.

But microcredit isn’t a panacea. It has always been vulnerable to abuse. The most recent example is a scandal in India, where banks have been luring microborrowers into excessive debt, just as predatory lenders lured millions of Americans into unsustainable mortgages. Loans can be malignant. Some people shouldn’t take on debt. Some businesses are too risky. And the temptation is always present to spend the loan on food for the family or shoes for the children.

In the hills of rural Guatemala, a different kind of microfinance, one that doesn’t involve loans, is doing something microcredit can’t. A company called Soluciones Comunitarias (“community solutions”) is selling products that improve the health and prosperity of villagers, and doing it in a sustainable way while providing rural people — the vast majority of them women — with new business opportunities that do not require risk or debt. Soluciones Comunitarias uses the same model employed by second-hand clothing and furniture shops in the United States and elsewhere: consignment. It’s an old idea. What’s new is using it to improve the lives of the rural poor.

Full article here: http://opinionator.blogs.nytimes.com/2011/01/31/when-microcredit-wont-do/