Microcredit is overhyped, expert says

    Is microcredit actually transforming the lives of poor people in developing countries as its proponents claim?  An expert in the field weighs in on the issue with a “dour” verdict.

    “Microcredit rarely transforms lives,” David Roodman, a senior fellow at the U.S.-based Center for Global Development says. “It’s a constructive endeavor, but it has been vastly overhyped. And the hype has undermined the good that the movement can achieve.”

    Roodman argues most accounts about the impact of microcredit are rarely representative. The compelling stories promoters of the approach tell fail to take into account the different experiences of people who receive microcredit, he says. Academic studies are also problematic when it comes to establishing correlation, Roodman adds.

    The microcredit expert says this zeal for the approach has negatively affected the potential of the broader field of microfinance to have a more significant impact on poor people’s lives.

    “The industry should move away from its long-standing focus on credit, and experience shows that it can,” he suggests. “The best approach is not to pour more money into microlending. It is to put less in — and target it for start-up investments and training that can build durable financial institutions that deliver a variety of services to the poor.”

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    About the author

    • Ivy Mungcal

      As former senior staff writer, Ivy Mungcal contributed to several Devex publications. Her focus is on breaking news, and in particular on global aid reform and trends in the United States, Europe, the Caribbean, and the Americas. Before joining Devex in 2009, Ivy produced specialized content for U.S. and U.K.-based business websites.