To read the below Newsweek article, you might think there is no difference at all between a good micro-banker and a bad one.
Newsweek tells us that poverty is undone by savings, not by lending. We know that. Good micro-bankers have maintained for years that microfinance should be savings led, not credit led. Newsweek tells us that there is no evidence that microcredit itself undoes poverty. We know that. Responsible micro-bankers have transparently identified this lack of hard, conclusive data for years. Newsweek tells us that micro-lending by state-owned Chinese and Brazilian institutions are not well managed. You don’t say? Again, we know that. For decades, good microbankers have been demanding that governments not engage in banking of any kind because politics distort markets and increase poverty. Newsweek cites irresponsible micro-lending to condemn microfinance. Responsible journalism would condemn the governments and all the “me-too” efforts for damaging microbanking.
It goes without saying that Newsweek skewers Mr. Yunus and the Grameen Bank, citing bad loan portfolio quality åö the worst insult you can level at a microbank åö without citing any evidence whatsoever.
Nonetheless, Newsweek is right that a backlash against microfinance is coming. Anyone and everyone is indeed “jumping in” to microfinance and a backlash is therefore inevitable. Everyday, there are more and more clueless and irresponsible individuals and organizations piling on. Does this mean that experienced, professional, and dedicated microbankers are wrong too? No.
As we articulate again and again here at MicroCapital, microfinance suffers from usury, amateurism, manifest destiny, corruption, and waste, among other nastiness. As the frenzy increases, these massive flaws will result in serious meltdowns and the corresponding backlash.
What can be done? Our advice is the same as always: Manage risk.
The below is the profiteering Newsweek article quoted in full:
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