Obama Calls Out Microfinance: Taking the Measure of Microfinance

This paper examines various allegations against microfinance and offers its own perspective on each of them.

Recent criticisms have accused microfinance of being predatory and exploitative. Critics say that:

• Microfinance does not lift people out of poverty;
• Microloan repayment rates are not proof of microfinances impact on poverty reduction;
• Poor people really need savings accounts, and not more debt;
• Poor people often misuse microloans;
• Poor people need jobs;
• Microfinance does not always empower women and, in some regions, may even erode gender equality;
• Microcredit’s village banking methodology is coercive and harsh;
• Microfinance charges very high interest rates.

The paper states that microfinance is not a silver bullet for poverty eradication. Its impact lies in the improved quality of life. At its best, microfinance represents opportunity and hope, and provides an impoverished person with choices. Abuses and fraud do exist, but microfinance has succeeded in reaching people who had no access to financial services and providing them with saving and credit facilities. It has enabled the poor to make their own financial decisions and helped in empowering women.