New York Times reports on rise, fall of microloans in developing countries

Jan 7 2011

The New York Times reports on how microlending has "prompted political hostility in Bangladesh, India, Nicaragua and other developing countries." Such negativity "toward microfinance is a sharp reversal from the praise and good will that politicians, social workers and bankers showered on the sector in the last decade." The article notes "[p]hilanthropists and investors poured billions of dollars into nonprofit and profit-making microlenders, who were considered vital players" in helping to achieve the U.N. Millennium Development Goals (MDGs), including the MDG target to halve extreme poverty by 2015. Such attention "helped the sector reach more than 91 million customers, most of them women, with loans totaling more than $70 billion by the end of 2009," with half of all borrowers from India and Bangladesh.

The newspaper writes, "Done right, these loans have shown promise in allowing some borrowers to build sustainable livelihoods. But it has also become clear that the rapid growth of microcredit - in India some lending firms were growing at 60 percent to 100 percent a year - has made the loans much less effective. … Most borrowers do not appear to be climbing out of poverty, and a sizable minority is getting trapped in a spiral of debt, according to studies and analysts."

At the same time, lenders have profited, leading "politicians in developing nations … to depicting lenders as profiteering at the expense of borrowers," according to the newspaper. The article describes how the situation is unfolding in Nicaragua, Bangladesh and India, as well as plans for microfinance sector reforms to improve the outcomes on the ground. The piece includes quotes by Alex Counts, the chief executive of the Grameen Foundation, a nonprofit in Washington; Suresh Krishna, managing director of Grameen Financial; Elisabeth Rhyne, a senior official at Accion International, a organization in Boston that invests in microlenders; and David Roodman, a senior fellow at the Center for Global Development (Bajaj, 1/6).