I was wondering if anyone had studied this topic before. Speciifcally its results. The practice itself seems logical enough as it is simply a small scale loan. Any views on this as a cure to underdeveloped areas?
I know this isn’t the traditional big govt. vs. small govt question, so no need to remind me what kinda forum I’m in. However I do know that some of you do know your share of economics. 
Wage labour is the traditional way that millions of impoverished peoples have arisen in their material prosperity to levels above their less fortunate counterparts, separated from the international division of labour and foreign investment.
As far as I can tell, they seem to largely be wisely lent out, with an extremely low default rate. I could totally see someone making lots of money based on a large number of microloans.
I think that microfinance can contribute to pulling people out of poverty, but it isn’t the golden bullet. The golden bullet would be an end to corporatist, mercantilist, and socialist economic policies throughout the world. That said, if you’re interested in “giving a gift that keeps on giving,” I would suggest you put some money into a microcredit company like Kiva. Economically speaking, the best loans would go to farmers and other small entrepreneurs who produce something out of (virtually) nothing. I would try to avoid the consumer loans and whatnot.
If you’re interested in peer-to-peer lending and earning a profit, I would open up an account with Prosper.com, if I were you. That kind of lending helps relieve poverty in the first world and it helps you earn a profit while you’re at it.
What exactly do you mean by corporatist & mercantilist? What is wrong with coporations?
He means fascist, without trying to use that politically loaded label. hth
See Jeff Tucker on this:
Timothy Terrell
These articles, especially the first one, really do not make a coherent argument…
The first one’s rhetoric is even suprisingly close to the left’s “let’s hate bankers” attitutde:
“effect of the Grameen strategy has not been to reduce poverty but only to create a debt trap for borrowers, who are being charged very high rates of interest relative to conventional banks.”
Ya… What is wrong with that? Why shouldn’t they be charged a higher intrest rate, it seems like they might be riskier. The fact that a libretarian would make this argument is close to blasphemy.
As long as it’s free market lending, what is the problem. If you don’t want government subsidies thats one thing, but that’s not an argument against the effectiveness…
The second is an Ad Hominem attack saying that its the Microlender’s fault the poor are poor.
“The choice is whether to see a doctor or buy food,” he said, laying out the pitiless arithmetic of poverty. “The government doctors don’t check us properly because we don’t pay them money. Even if they prescribe medicines, we can’t afford them.”
On the first page, they attack the intrest rates charged. Not suprising that the NY Times would be for price fixing.
The last is the only one that seems to give a coherent argument against Microloans. But still fails:
“his strategy of loans-to-the-poor was supposed to be the magic means by which people could bypass the old-fashioned stage of saving, investing, exchanging, and producing”
Tell me, how is one supposed to save or invest, if there is no one else to loan to? Can producing or exchanging be done without investment? I mean we all here know the fact that lending is a extremely important practice to growth…Why is this on Mises?
The only good point made is this:
“In fact, most microcredit clients actually spend their borrowed money not on a business, but on household expenses, on paying off other debts or on a relatively big-ticket item like a TV or a daughter’s wedding”
I can’t find any real citations except for this MIT paper that I have to go through.
Being against corporatism doesn’t mean you’re against corporations. Corporatism is a system in which the government subsidizes, regulates, controls, etc. corporations or businesses but allows for private ownership. Being against mercantilism doesn’t mean you are opposed to merchants or anything like that. Mercantilism is basically a protectionist system that seeks to eliminate foreign trade.
Both corporatism and mercantilism are anti-free market.