Organizations and Markets

Posner and Becker on Microfinance

30 October 2006 at 12:21 pm Peter G. Klein Leave a comment

| Peter Klein |

Further reservations about the microfinance phenomenon, offered here by Richard Posner and Gary Becker. Posner:

The evidence for the efficacy of microfinance in stimulating production and alleviating poverty is so far anecdotal rather than systematic. The idea of borrowing one’s way out of poverty is passing strange. And I am unaware of any historical examples of nations that climbed out of poverty on the backs of small entrepreneurs financed by credit. Also, recall that Grameen Bank has lent almost $6 billion to some 6 million persons. This implies an average loan of almost $1,000, which in a country like Bangladesh is not chicken feed and makes one wonder how much of the Grameen Bank’s loan portfolio is actually microfinance.

Adds Becker:

[A]ll economists who have studied microfinance agree that it will never be more than a minor factor in ending poverty in any country. Economic growth requires secure property rights, encouragement of private enterprise, openness to international trade, stimulation of education, limited and sensible regulations, and reasonably honest government. Microfinance makes only a small direct contribution to any of these variables.

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