Microfinance and Growth

22 February 2007 at 9:49 am 1 comment

| Peter Klein |

As excitement over the Yunnus Nobel fades, microfinance skeptics continue to emerge. The latest is Thomas Dichter, who writes in a new Cato paper:

Most people, poor or otherwise, are not entrepreneurs, so there is little reason to think that mass credit would in general lead to viable business start-ups. Today as in the past, business start-ups in the advanced countries depend predominantly on savings and informal sources of credit; past forms of microcredit never played a role in small business development, and much microcredit is actually used for consumption rather than investment. In the history of today’s rich countries, moreover, economic growth occurred first, then came credit for the masses. That credit was and is predominantly for consumption rather than investment.

The paper is “A Second Look at Microfinance: The Sequence of Growth and Credit in Economic History. And here is a rare specimin, an empirical paper on microcredit that uses actual microdata.

Entry filed under: - Klein -, Entrepreneurship, Institutions. Tags: .

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1 Comment Add your own

  • 1. Kevin Carson  |  28 February 2007 at 1:39 am

    If large TNCs backed by “macrocredit” receive structural supports from the state, then arguably there is a crowding out effect against the kinds of entrepreneurship that might be supported by microcredit in a free market.

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