David Roodman was quoted in a microfinance article in The Seattle Times.
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Giving small loans to the working poor as an answer to poverty has had huge appeal to people of all political persuasions, and it proved especially popular in Seattle, where at least 20 different organizations support microlending.
Now some are saying that its merits have been oversold.
"Microfinance got romanticized," says Rick Beckett, CEO of Global Partnerships, a Seattle nonprofit that funds microloans and other services for the poor in Latin America. "We have to own the fact that we fell in love with it."
"That story, as cool as it is, is just not true," he says. "A $100 loan does not change the world."
Beckett and other experts in microfinance met here last week to take stock of a crisis that is shaking the worldwide microlending movement to its core. The discussion was hosted by the group Global Washington.
After growing at a red-hot pace over the last decade, institutions in India that provide credit to poor borrowers now find themselves facing new regulations that have brought the industry to a halt and encouraged widespread default.
Nowhere was the growth as fast as in the Indian state of Andhra Pradesh, where profit-driven lenders seeking higher returns competed for borrowers, who often juggled multiple loans.
One Indian company funded in part by Seattle backers, SKS Microfinance, went public last summer and generated millions for its wealthy investors. Making so much money on the poor became politically difficult, says David Roodman, a senior fellow at the Center for Global Development in Washington, D.C., who participated in the discussion.
The core problem was fast growth, Roodman says. "It sounded a lot like the mortgage crisis here."
Microcredit also has taken off in other parts of the world, with varying degrees of risk. Roodman suggests establishing a credit bureau to collect and share information on the financial obligations of microcreditors would help create a culture of restraint. And growth financed by savings deposits rather than outside investors provides much more stability.
While microcredit does give people more control over their finances, there's no proof that it has alleviated poverty, he says. In the U.S. what reduced poverty most was industrialization.