I write to recommend reading David Roodman’s recent column in the Washington Post (“Microcredit doesn’t end poverty, despite all the hype”).
Microcredit has been the fair-haired child in economic development despite very weak evidence that it was successful in reducing (much less “end[ing]”) poverty. It has been praised by liberals, conservatives, and feminists – an odd but strong coalition. Roodman explains that providing credit to poor people does not necessarily increase growth and reduce poverty. Roodman notes that providing large amounts of microcredit can produce bubbles. He notes that Bosnia is one of the nations that have experienced this problem, but does not note the critical article on the Bosnian microfinance crisis and he fails to mention the five-letter “f” word – fraud. Doing so would greatly strengthen his argument and demonstrate that badly designed microcredit can spur control fraud, bubbles, financial crises, recessions, and increased poverty. Roodman was writing a brief, general article about microfinance. A longer article about Bosnia’s microcredit nightmare is a good complement to his piece and I urge reading both articles in full.