The first time I encountered the idea of microfinance was at a church conference, and one of the interviewees was a co-founder of Kiva. "This. Is. Amazing," I thought. So simple! So effective! And above all, not paternalistic in the least, pointing toward long-term development that is actually effective. I was definitely smitten.
For the uninitiated: microfinance is the idea of making small loans to people in developing countries (either through community groups or a bank established for this purpose) to help them start a small business or endeavour of a similar sort. This is meant to help people to gain workable skills and establish themselves in a sustainable manner.
Microfinance has made great gains in popularity lately, and certainly seems to have a lot of the answers that people are looking for in terms of addressing poverty in a meaningful and effective way. The idea of mere financial aid is one that is often met with a healthy amount of cynicism; people are disillusioned from seeing money go to developing countries only to be mismanaged, get lost in inefficient government systems, or to go to something that doesn't actually benefit a community in the long run. The more we learn about poverty it seems that the obstacles are that much greater, and it seems like there is not that much that can be significantly accomplished.
Microfinance takes a different approach, and there are a lot of good ideas here: dignity of the poor, cultural sensitivity, the whole "teaching a man to fish," thing, and it inspires a reciprocal relationship between the donor and the receiver, rather than dependence on handouts and encouraging the weird power balance that so often accompanies aid. I think though, that microfinance is more complicated than it initially seems - it is certainly not the messiah of the developing world, as it is so often esteemed. Some of these cracks in the surface are starting to show, such as violence and shame surrounding pressure to repay loans. Impatience with faulty development strategies might hasten someone's dismissal of microfinance, but this should not be the case. By looking critically at the benefits and drawbacks of microfinance we can better assess how to apply it, and how to avoid these pitfalls.
Food for thought and related reading:
"How Microfinance Changes the Lives of Millions," Shweta S. Banerjee. Foreign Policy. October 26, 2009.
"India's Looming Microcredit Crisis." Sanjay Kumar. The Diplomat. October 30, 2011.
Microfinance and its Discontents: Women in Debt in Bangladesh, Lamia Karim
Banker to the Poor, Muhammad Yunus.