Nearly seven years ago, the United Nations (UN) declared that 2005 was the ‘year of microcredit.’ Thirty years after Bangladeshi economist Muhammad Yunus pioneered the phenomenon of microcredit (also known as micro-lending), the social tool finally started gaining worldwide momentum. Microcredit, the lending of small loans to individuals in developing communities for the purpose of entrepreneurship, reached official social ‘sexy’ status in 2005. With this newfound status of civil society hot-topic, UN agencies and NGOs (non-governmental organizations) around the world worked on re-evaluating current microlending practices and implementing new and groundbreaking programs. 2006 saw the establishment of peer-to-peer microlending non-profit agency Kiva along with a similar for-profit agency MicroPlace. As of 2005, there had already been a UN general assembly resolution on file regarding microcredit (A/53/223 The Role of Microcredit in the Eradication of Poverty) but the year of UN advocacy helped project the importance of microfinance to the global civil society. The UN also emphasized microcredit as an essential tool in accomplishing the upcoming Millenium Development Goals (MDGs) by 2015. By the close of the year of microcredit, the development tool was being hailed in international civil society circles as critical to the growth of the developing world. It was however, not without its critics.
Since 2005 many reputable news sources, including the Economist and the New York Times, have reported problems within the world of microfinance. One such case was reported in the Economist regarding a small Indian district of Krishna where impoverished women were committing suicide because they could not pay off their microloans. Rapid growth within the microcredit sector in Krishna led to destructive competitive practices, leaving the loan takers feeling desolate. In another instance of perhaps unsavory business practices, the non-profit organization Kiva has taken much criticism since its founding over issues with oversight. Many critics site a 2008 instance where a loan taker was listed on Kiva’s website as using her loan money to fund her cockfighting business. While Kiva did assert that they do not fund practices that are illegal in the countries where the entrepreneur operates, many donors were unhappy with the “animal rights’ abuses” being committed. Kiva did defend their loan taker, stating that the practice was culturally sound in the country where the entrepreneur operated, and it was not the role of the agency to place judgments on legal cultural practices. The biggest critique of microcredit however has not stemmed from small instances of corruption or perceptions of animal abuse and culture, but from questioning of the overall effectiveness of the development tool. Some question its long term benefits and sustainability. Despite these critiques however countries, NGOs and intergovernmental organizations like the UN have kept forward momentum in establishing microcredit as an essential development tool.
In fact, governments have started regulating microcredit practices internationally, thus ensuring ‘good governance’ in microcredit practice. Additionally, social researchers and economists have stated that in some specific cases microlending can decrease poverty 20% over an average five year period. By implementing microlending legislation and promoting research on the effectiveness of microlending, world leaders have ensured that microcredit is here to stay—at least while there is money enough for the tool.
Finance, including microlending, has never been regarded as the ‘sexiest’ of topics. Since 2005, despite the rapid growth of microcredit and the regular discourse and controversy on the topic, major news sources report scantily on the important development tool. The global attention has mainly been centered on the financial crisis since 2008 and recent wars and revolutions in the Middle East. Like many developments in the world of social empowerment, the evolution of microlending has generally flown under the public radar. Of course social scientists and civil society advocates find microlending to be quite sexy; it is a phenomenon that brings the two traditionally separate sectors of finance and human development together in a way that is successful in the growth of both. While this is a step in the right direction, this close tie between finance and development has been impacted—both positively and negatively—by the recent financial downturn. With budget cuts, many civil society organizations have been reduced or eliminated, impacting the non-profit provision of microfinance services. What is interesting to note however is that microlending is crucial to global economic growth. Microcredit opens lending markets, however small, in developing nations. This may be an instance of shooting oneself in the foot, but that is a topic of analysis needing an article of its own. After the beginning of the global economic crisis, microlending services have shown to be in need of the ‘sexy’ factor now more than ever, but it is difficult to market money lending as a solution for development, when it is also largely perceived as the cause of the problem.
In civil society, those ‘sexy’, hot topics often include human rights, women’s empowerment and the like. These topics are easy to market; just see how Invisible Children went viral documenting the human rights abuses of Joseph Kony and the LRA. Additionally, global civil society seems to focus more on direct service provisions like basic needs (i.e. food, shelter, safety) and advocacy. It might take an overall paradigm shift to turn the tables, getting both donors and organizations alike to spend more money on sustainable, empowerment-based services like microcredit. So, for those who take interest in and may have a part of development, microcredit is still very ‘sexy.’ Despite controversy and poor governance, the phenomenon has prospered overall and has found a hopefully lasting spot on the shelf of development tools.
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