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27 Nov 06

Microcredit Wins The Nobel Peace Prize

www.globalenvision.org/...1326 - Preview

criticism for microcredit

Microcredit should not be oversold. Poor people in many parts of the world need more than small loans and it will take more than microcredit to lift these people to an acceptable and humane standard of living. It seems logical that financial services should be made available to the poor if it can help alleviate the poverty they suffer, however, it is also important to be mindful that microcredit is not a panacea and has its limitations. For example, where there are highly vulnerable groups of people because of humanitarian crises like the 2004 tsunami that struck countries in southeast and south Asia or in parts of Sub-Saharan Africa where there are high rates of disease like malaria, tuberculosis or HIV/ AIDS, microcredit may not be the best means of assistance. In these instances microcredit can even exacerbate the situation by placing additional burdens of debt on groups who are already struggling to survive.
They argue that microcredit helps poor people to cope with living in poverty rather than helping to lift them out of it. According to the economic journalist, Gina Neff, "After eight years of borrowing, 55% of Grameen households still aren't able to meet their basic nutritional needs - so many women are using their loans to buy food rather than invest in business."
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- The Nobel committee's choice for this year's peace prize should not mean that other means of assistance that are equally if not more effective than microcredit are ignored. Studies conducted by the World Bank and the Philippine Development Institute, suggest that investment in infrastructure like roads and bridges and agrarian land reform were as good and sometimes even better at lifting people out of poverty than microcredit. John Tierney of the New York Times wrote that Wal-Mart has done more for the poor than microcredit. Tierney refers to a study conducted in 10 Asian and Latin American countries that found that the average apparel worker in Honduras, for example, makes about $13 per day, significantly more than the average microentrepreneur.
- Hopefully this year's Nobel Peace Prize celebrating microcredit will not inflate expectations of microcredit's capacity to reduce global poverty. The trade barriers imposed by rich countries also play a key role. Microcredit should not divert attention away from this issue and allow rich countries to avoid having to address the subsidies, tariffs and quotas they use to protect domestic industries and which penalize poor countries. More than microcredit has to happen if the world is serious about eradicating poverty. Christina Barrineau, Chief Technical Advisor to the International Year of Microcredit 2005, said, "Poverty eradication is not a simple, linear process. And microfinance is not a simple solution. It is a long-term proposition and only a component of poverty eradication."