#132 Microcredit

submitted by Eric Wallace

Expat Aid Workers love them some microcredit. So do a lot of other people, for that matter.

Even Benetton likes Microcredit, so it *must* be good!

Microcredit is one of the few development industry trends that seems to have caught on with the Three Cups of Tea reading public. (See? There it is, #53 Hating on Three Cups of Tea.)

To review, microcredit is the practice of lending very small amounts of money to people with the idea that they’ll use the loan to build a business that will lift them out of poverty. In one guise or another, it’s part of a lot of EAW projects.

EAWs think that microcredit is really cool because it bundles together a number of beliefs that EAWs have about the world.

First off, a lot of microcredit programs operate under the assumption that there are large populations of entrepreneurs in countries with long histories of poverty who just need a tiny push in the form of a microloan to unleash their wealth creating power. A lot of EAWs can say with a straight face that their microloans empower people who may be illiterate, innumerate and own no productive assets to start “microenterprises”.

The problem with this belief is that it’s insane. Entrepreneurs are rare, even in the US, which has a credible claim to being the most entrepreneurial culture that has ever existed anywhere. They’re even rarer in developing countries, which have suffered from generation after generation of entrepreneurs leaving for places where they can better pursue their dreams of liberty, prosperity and using the bathroom indoors.

Secondly, microcredit programs enable EAWs to act as if a country can be made to prosper without dealing with a bunch of problems that are complicated, and even worse, really boring. In a lot of countries where EAWs work, what needs to happen is to start over with completely new and carefully thought out political, economic, social and cultural systems.

But instead of going on and on about that and ruining EAW bowling night, it’s a lot more satisfying to give a trivial quantity of money to a SLONGO so that they can make hand crafted Ipod cozies out of guinea pig pelts. Microcredit is a real time saver too. You can make like a zillion microloans in the time it takes to pass a deposit insurance law. Even better, with a microcredit program, you don’t have to give your local staff any real responsibility or control over who gets a loan. In fact, it’s better if you don’t because of the inevitable conflict between Westerners handing out money and local staff with extensive (and expensive) social obligations.

Lastly, microcredit allows EAWs to act out one of the main values they bring with them from their home countries: spending is way more awesome than saving or investing. Many EAWs have been brought up with the idea that buying stuff makes everything right and they’ve taken that bone-deep belief with them to their jobs overseas.

When faced with the reality of a person who makes their livelihood from germinating the fruit seeds that other guys in the village spit out, EAWs figure that the way to solve this problem is to give the guy $25 so he can buy himself something nice. Giving out microloans in places where mutually beneficial commerce is next to impossible does about as much good as giving a quarter to a homeless guy, except for there’s a lot more paperwork. And paperwork makes everything legitimate in the EAW’s world.

Microcredit. It’s the way to go.