Does Microlending Really Help the Poor?

The BBC World Service; radio broadcast; 29 July 2009.

To listen to the voices of borrowers, lenders, and regulators engaged in microcredit BBC radio reporter Jo Fidgen goes to the streets in Zambia. She uncovers the “debt trap” into which some Zambian borrowers have fallen. According to one microcredit borrower who runs a sewing shop: “After I pay off the interest on my loan every month, there is no money left to invest in my business.” Rates of interest, sometimes as high as 60%, make it difficult for the owners of small and medium sized businesses to keep up with loan payments. The cost of lending is high due to the risks of operating in Zambia, including unreliable communication and transport infrastructure. To reduce interest rates requires addressing the risks and cost of operating. To significantly bring down the operating costs may require national infrastructure investment and systemic change.

The BBC follows these direct interviews with a conversation with Professor Dean Karlan of Yale University discussing his research in the impact of microcredit on families in the Philippines. Despite the rhetoric of “seeing entrepreneurship,” he found that microlenders often lent only to those who already had an established business. He also found the surprising result that it was men’s rather than women’s businesses which benefited from microcredit loans. The punchline: “microcredit is not a development panacea.”

To listen to the report, click: business/2009/07/090729_microfinance_biz_daily.shtml

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