Is Lending the Solution?

The Grameen Scotland Foundation will oversee the running of a microfinance-style lending in Scotland. Tesco Bank will provide £500,000 of the loan capital for what will be Grameen’s first venture in the UK. The Scottish Government have donated £100,000, and supporters such as businesswoman Ann Gloag, who has also given £100,000. The original Grameen bank, founded more than 20 years ago in Bangladesh to offer small loans to those excluded by the traditional banking system. The borrowers are almost exclusively women. They are required to organise themselves into groups of five, which creates a support system for repaying the loan. The average loan is around £1,000 and repayment rates are high, often close to 100%. Grameen now has around 8 million borrowers and has issued more than £3.5bn in small loans in the past two decades. Grameen Glasgow will be based in a community-run centre in the Sighthill area of the city, where more than 59% of children live in workless households with up to four generations unemployed.

Has microfinance genuinely benefited the world's poor? Held up for decades as a "miracle cure" for global poverty, microfinance became one of the world's most high-profile and generously funded development interventions. Everyone was talking about how small loans could unlock endless opportunities for the world's poorest people.

New studies began to challenge the promise of microfinance to bring about an unprecedented reduction in poverty that prompted parallels with the US sub-prime mortgage collapse. Reports of skyrocketing interest rates and suicides among indebted borrowers in Andhra Pradesh, India, suggested a sinister side to the microcredit boom. Last year, a sweeping review of the evidence, funded by the UK government, concluded that the "enthusiasm [for microcredit] is built on … foundations of sand". It was unclear when, and for whom, microfinance had been "of real, rather than imagined, benefit to poor people", it said. A further study commissioned by the UK Department for International Development (DfID) advised against lending to the poorest of the poor, who are more vulnerable to the dangers of debt. A study on microcredit in Bosnia found a substantial increase in child labour in businesses opened through microloans, raising concerns about the unintended consequences of increasing access to credit and self-employment. Norway says it will stop funding microfinance due to changes in the sector, including more competition and the addition of commercial capital. A recent Deutsche Bank report describes microfinance as "a development programme turning commercial". Banks and other for-profit organisations are taking the lead, it notes, as "NGOs seem to have lost their role as the primary vehicle for microlending". Private funding is on the rise. Last week – in the largest deal of its kind – Luxembourg-based fund Bamboo Finance announced its $105m (£66m) acquisition of a controlling stake in Accion Investments in Microfinance, a powerful for-profit equity fund, which counted some of the biggest development finance institutions among its founding shareholders.


"Microcredit is not a 'silver bullet' to end all poverty … The leaders of the microfinance industry have known this for some time." said the CEOs of eight Mictofinance organisations.

Cambridge University economist Ha-Joon Chang puts part of its popularity down to a "strange alliance" between a financial industry that "does nasty things to make money, and people who genuinely wanted to help the poor but were against the collective approach". What's more, it enabled some institutions to say they cared about the poor without having to spend on social welfare, he argues.

 Why aren't we all wealthy? The wealthy have an answer: the poor are ignorant and lazy. The rich say they have nothing to do with our poverty. But a necessary part of becoming wealthy and staying wealthy is keeping your neighbor poor. There are a large number of relationships in capitalist society that keep the rich wealthy and the poor in poverty. The whole goal of the self-interested actor in the marketplace is buying low and selling high, hoping to profit. Working for wages that pay the worker less money than the value his work creates for the owner is one such transaction. Usually, the owner will not even hire a worker unless they believe they can make a profit. A person renting from a landlord, whether an apartment, house, or piece of land pay for landlords to make a profit over and above their costs. Banks and others loan money to borrowers and collect interest. The wealthy work to protect their wealth.