It was Muhammad Yunus’ vision of “Eliminating Poverty through Social Business” (Grameen, 2017) which won him the esteemed Noble Peace Prize in 2006. Yet, while Microfinance has been frequently termed the “silver bullet” to fight poverty in the 20th century, this concept has not been received without much skepticism and controversy in recent years.
Ha-Joon Chang, economic professor at Cambridge University, criticizes relying on what he regards as the microfinance “saga” to resolve the ever-prevalent issue of poverty. In his paper ‘The Microfinance Illusion“, he rejects the view that these minor loans and investments can sufficiently improve the economic sustainability of a region. Rather, he states that the idea has merely satisfied desires to be socially conscientious by giving temporary power to people who will never attempt to demand the necessary reforms: the introduction of a “comprehensive welfare state” and a “large scale redirection of resources”.
“Poverty is complex and multifactorial in origin, and requires diverse strategies to achieve progress.” – Justin Winters
Despite the explosive popularity of microfinance in countries like Bangladesh, Bosnia and Cambodia these countries still suffer more from poverty than the less microfinance-dominated regions of South-East Asia (Bateman 2011, ‘From Poverty to Power’ Oxfam Blog). So, has Microfinance undermined the underlying causes of poverty? Has it simplified the elimination of poverty by making a select number of poor individuals richer? Chang poses these questions in his interview on The Guardian, asserting the notion that there is no ultimate “silver bullet” for an issue as complex as poverty.
However, Muhammad Yunus’ visions for the impact of microfinance in impoverished countries also lies beyond a simplistic goal of “elimination”. A large focus of the Grameen Bank involves empowering women and equipping them with enough economic power to grant them a voice in their society. Their contributions to health and social advancement is a small step, but a step nonetheless, towards tackling poverty in their region. Whether the approach can be sustained in the long-term or whether the limited access to its financial services is inequitable remains open for debate on the effectiveness of microcredit.
In reconciliation of these differing arguments and consequences, perhaps we may only recognize that microfinance is a concept which requires ethical consideration; it is an approach that should be maintained in balance with other larger-scaled initiatives and holistic viewpoints. The microcredit sector has greatly slowed in relation to its rapid initial growth, but its social power should not yet be so quickly dismissed.