(Picture from the UN)

While most everyone in the field of social entrepreneurship and interenational development seems high on the benefits of microfinance, there are other views. I stumbled across The Sustainable Future which pointed me to this article by Thomas Dichter at the Microfinance Gateway that's worth a read:

Yet microcredit is an almost perfect case of a phenomenon that has come to characterize much of development assistance - a widening gap between reality and propaganda. For while the promise of microcredit is irresistible - help the poor out of poverty using their own entrepreneurial energies, and in the process get our investment back - the hoped for poverty reduction impact of microcredit remains elusive. While much has been learned about managing microcredit in a sound manner, the number of professionally run MFIs with a realistic understanding of the limits of microcredit, is dwarfed by the growing number of newcomers to the field, many of whom trumpet success prematurely, and may cause as much harm as help.

This dangerous habit is increasingly being displayed not just by naïve celebrities (we all know their names) but by those who ought to know better. In 2004 Kofi Annan stated that "microcredit has been one of the success stories of the last decade," while USAID's microfinance unit claimed that microfinance "has tremendous potential to generate income and expand employment." The website of the "International Year of Microcredit" is even more unequivocal about the development potential of microcredit: "Currently, microentrepreneurs use loans as small as $100 to grow thriving businesses... leading to strong and flourishing local economies."

What do you think? Hope or hype? Please comment below.