Big Think

Anthony Tobalo commented on Is microfinance the panacea to solving global poverty? on March 30, 2009, 8:29 AM

To say Microfinance is a panacea to solving world poverty is an overstatement and to a greater extent a narrow way of looking at poverty which is multidimensional. No single factor can solve world poverty single-handedly. Hence microfinance can only be an ingredient in solving global poverty. Poverty is frequently the result of powerlessness. The proponents of microfinance programmes as a panacea of poverty ignore the complex matrix of power relations that circumscribe the capacities of the poor to run micro enterprises. Credit is only one ingredient in the mix of factors necessary for a successful enterprise. Many peoples or microfinance evangelists view the rural poor as a collection of budding entrepreneurs, waiting for salvation from credit agencies, which on receipt of credit, will develop successful micro enterprises and leave poverty forever. Their promotional activity gives rise to worrying spectra of a return to a “blueprint”, implicit in the new microfinance approach to development. To respond to a potential demand for a good or service, a rural micro-entrepreneur may need access to one or more of the following: transport, communications, power, water, storage facilities, a legal system for enforcing contracts and settling disputes. Apart from infrastructure, micro entrepreneurs need access to information about market trends and skills to run their macro enterprises. Besides micro-loans, one needs hard work, skills and enthusiasm as an essential ingredient for an enterprise to be successful. Even where infrastructures are put in place, some poor don't click (they look like having been bewitched by poverty) & can’t utilize the micro credits meaningfully. They are not only poor but are non-entrepreneurial poor. They poor require direct assistance to survive. But some (enterprising poor) are able to increase their income by themselves, create activities that would enable them to move closer to or above the poverty line. This type of poor can utilize microfinances to near solving biting/individual (but not Aggregate - Case & Generic poverty) global poverty. Because of the two categories of the poor above, some critics argue that the necessary infrastructure has been put in place in some areas for microfinance to trigger economic processes but very little success has been recorded which makes the problem of poverty and the poor very tricky. Capital in terms of microfinance is just one factor which requires other factors like access to markets, information, and training of any kind, business development skills and business networks and entrepreneurial skills. Indeed, microfinance is not a panacea to the problem of poverty but improved access to capital and other financial services are significant to the poor. The problem is that market failures weaken the effectiveness of microfinance. Microfinance also has a polarizing effect as there is discrimination in favor of richer clients, who benefit from better access to credit, and exclusion of poorer people. If one of the aims of microfinance is to assist the “poorest of the poor” the microfinance is not always the most appropriate intervention.

Anthony Tobalo commented on Should microfinance be commercialized? on March 30, 2009, 6:37 AM

As long as Microfinance services are rendered to the poor by business peoples, it will continue to inevitably be commercialized. The price of any commodity considers factors like: the cost of fund/capital/RRI, costs of running the biz, profit margin and more importantly business peoples exploite any opportunity, market information gap to reap big (profit) from anywhere. However, it wouldn't need to be commercialized if offered to the poor by Charity organisations.