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microfinance – from a greater good to lesser evil to a curse

February 1, 2011


The PhD defense of my former colleague Britta Augsburg (now at Institute of Fiscal Studies in London) in 2009 entitled “Microfinance – greater good or lesser evil?” already made me realize that micro-finance might not be the panacea to poverty reduction that it promised to be in its heydays. The debate focused very much on issues such as rate of return on investment, repayment mechanisms and repayment rates and ignored discussions around empowerment, client satisfaction and emancipation as they were thought to come naturally.  The latter, however, has increasingly been found to  lag behind. Yesterday’s contribution to the Guardian by Jason Burke is an example of how microfinance has turned from a lesser evil into a downright curse for some families in India. The rate of indebtedness has risen to such an extent that for some families and communities, it has become too much to bear. To me, this example presents a strong call for (new) ideas in development and policies for poverty reduction to be considered with rigour right from the start, looking at both its potential benefits as well as negative side-effects. Too often, we get caught up in buzz-words and new ideas and become blind for possible hurdles or disadvantages.

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