Todd Harris

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The concept of microcredit is an extremely simple one: issue very small loans ("microloans") to impoverished persons with no collateral, that is to say no guarantee of reimbursement other than the borrower's word. Such practices seem so extremely risky for the lender that they have sometimes been described as 'charitable lending', although there are several examples of for-profit microcredit institutions from centuries past \cite{edegbe2014microfinance,hollis1999women,Midgley_2008}. The idea was popularised after Bangladeshi Professor Muhammad Yunus founded Grameen Bank in 1976. Its apparent success has inspired the implementation of microcredit institutions all over the world. The United Nations declared 2005 the International Year of Microcredit and the 2006 Nobel Peace Prize was awarded to Yunus and his bank for their actions against poverty \cite{bateman2010}. This essay will examine microcredit systems from two opposing perspectives, the lenders and the borrowers, highlighting the various structural problems that affect development outcomes. LendersProfessor Yunus remains the most prominent figure in microcredit. He tells a story of humanitarian motivations; the village of Jobra 'near enslaved' to predatory local lenders while owing just $27. Yunus believed that by offering a low-interest alternative to the local lender he could "liberate cash for the poor" that could be spent improving their quality of life. However for the poor to truly make their way out of poverty, Yunus believed the money had to be invested in a microenterprise that generated enough income to pay off the loan. He found in early trials that lending to groups of jointly responsible women led to the highest repayment rates \cite{yunus1999banker}. This soon lead to the founding of the non-profit Grameen Bank, for which Yunus is widely praised as a hero to the poor. However it could alternatively be said that Yunus saw an opportunity requiring from him no great sacrifice but yielding for him fame and influence. There is in fact a compelling case against Yunus, whose favour with multinational corporations and neoliberals serves as strong evidence that he is in fact an enemy of the poor, although the goodness or maliciousness of his intentions can only ever be truly known to himself \cite{bateman2010}. Grameen Bank requires borrowers to recite 16 Decisions in order to secure their loan, listed in table \ref{392488}. The Decisions illustrate some specific ways that microcredit was envisioned by Yunus as a tool for economic and social development, encouraging income improvement, clean adequate shelter, secure access to food, family planning, education, gender equality, lawful behaviour, and generally improving one's health. These are the key aspects of poverty reduction \cite{Laderchi_2003,Cleland_2006} - the primary goal of development policy \cite{way2015} - and so by encouraging these actions, Grameen Bank is attempting to foster development in Bangladesh. Furthermore, Grameen theoretically enables people to realise their entrepreneurial potential and frees them from economic oppression and exploitation (by loan sharks) - key parts of a popular alternative definition of development \cite{nyerere1990challenge}. Despite the Nobel Peace Prize, the effectiveness of Grameen and other microcredit institutions is the subject of significant controversy. There is a lot of literature suggesting that the positive developmental impacts of microcredit are overstated \cite{Chliova_2015}, not causally related to microcredit \cite{bateman2018rise}, and past results to the contrary have been discredited \cite{Roodman_2013}. Despite the intentions of Yunus and his many international supporters, microcredit is probably not an effective development tool.