Can Ethical Capitalism Work

Muhammad Yunus, founder of Grameen Bank revolutionised credit for the poor, won the 2006 Nobel Peace Prize and micro-finance became a household concept.

The maxim - “teach people how to take a small investment, grow their business and eventually become self-sufficient”.

The micro-finance sector is in the middle of a boom: “Micro-finance will grow more and more,” claims Nairobi-based director of Inclusive Financial Systems, Stephan Staschen. “More commercial entities will also get involved as they realise its profitability and the result will be that many poor people will be served.”

Yet , this report , questions its effectiveness . According to research by the Consultative Group to Assist the Poor in 2003, evidence of the effectiveness of micro-finance as a tool for development remains slim .

Thomas Dichter of the Cato Institute, the Washington DC-based think-tank, calls the potential of micro-finance “grossly overestimated”.
He asserts , “In Bangladesh, 30 years after Yunus’s invention, poverty statistics are worse than they’ve ever been, so something else is the source of the problem and micro-credit is not helping.” Dichter also criticises the influx of micro-finance institutions, claiming that agencies are “jumping into this field” under the assumption they can alleviate poverty without actually looking at the different causes of poverty in different regions. In recent writings he argues that micro-finance could be doing more harm than good.

Economics journalist Gina Neff has also written that “after eight years of borrowing, 55 percent of Grameen households still aren't able to meet their basic nutritional needs - so many women are using their loans to buy food rather than invest in business.”