Credit Where Credit is Due: Assessing the Embedded Ethics of Microfinance

This paper evaluates the ethical implications of microfinance. It examines contemporary research regarding microfinance as well as ethnographical research observing microfinance's impact on the lives of local borrowers. The paper finds that borrowers lack an understanding of borrowing terms. Loans are often advanced for consumption purposes rather than capital uses. Group collateralization has placed women in adversarial positions, with stronger borrowers coercing weaker women into repaying their loans. Borrowers often borrow money from expensive money lenders to pay off their microfinance loans. The paper proposes credit delivery through an asset bank, which would provide loans in hard assets, and only to those borrowers who operate at a minimum level of sophistication or capitalization. It recommends that:

• Borrowers be provided with pre-loan education;
• Lenders provide credit only to those who are able to demonstrate the ability and inclination to deploy the loan profitably;
• Lenders move away from group collateralization of loans;
• Government assert certain requirements such as limitation on usurious lending rates and codification of uniform terms of borrowing.