Sunday, March 20, 2016

Micro-Finance - no solution

Micro-financing dates back to the 1970s in Bangladesh, where small loans were given to poor people who did not have access to banks and its pioneer Professor Muhammad Yunus, was awarded the Nobel Peace Prize in 2006. This blog has documented over the years failure to remedy poverty and studies have repeatedly demonstrate this.

Micro-financing "led to a higher level of debt among already impoverished communities" in the developing world, instead of kick-starting jobs, according to months of research in Bangladesh, by Dr Laurel Jackson who has warned that the practice of providing small loans to poor families is dramatically increasing stress and debt levels. Dr Jackson, who visited three farming communities in Bangladesh over a five-year period, added: "There is enough evidence now, not just from my study, to make us question whether this is really a sustainable way of supporting these very vulnerable communities."

As a result the study deemed it as "unreasonable and unrealistic" that the Third World poor would use the loans to make wise business decisions that would generate long-term income. It also cites that the inability to pay back loans has led to "hundreds of suicides among borrowers in India".

"The theory behind micro-financing poor nations is that it will encourage entrepreneurial skills, increase income generating activity and empower the poor. This will in turn increase access to health and education. However, our research tells a different story," said Dr Jackson, from Western Sydney University's School of Business in Australia. Although there are some entrepreneurs who have used micro-financing to their benefit, Dr Jackson said her research revealed that that the vast majority of third-world poor do not possess the skills and creative visions that are required for successful entrepreneurs. "The popular belief is that this money gets repaid very quickly. But the way that happens is that these people will have to go and borrow from somebody else." 

Professor Bobby Banerjee, from the UK-based Cass Business School, said the findings show that vulnerabilities were exacerbated as a result of taking out the loans in the name of self-financing.

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