A recent New York Times article on microcredit in India may have missed the whole point. Their headline implies massive defaults in the microcredit industry, yet in the first paragraph they state, “borrowers in one of India’s largest states have stopped repaying their loans, egged on by politicians.”
If borrowers are defaulting because their businesses are failing, or because the microcredit institute shouldn’t have given them a loan, then ok, perhaps there is a place to examine industry practices. In this case however, it sounds more like the politicians aren’t getting the bribes they asked for, and are trying to destroy the industry as a result.
India is known for its massive levels of corruption and for its debilitating regulations when trying to start and run a business. Microcredit offers a way around many of the business regulations, as it enables individual entrepreneurs the ability to start businesses small enough that they don’t get as caught up in red tape.
The New York Times itself ran two articles earlier this week on the benefits of microfinance. One was a success story in Pakistan in which a very astute Pakistani woman states, “Charity is limited, but capitalism isn’t…If you want to change the world, you need market-based solutions.” And one discussing possibilities in Haiti for microfinance to help its continuing earthquake recovery and overall development.
Yes, there are bound to be problems when an industry is new. But any examination of the problems needs to look below the surface level. In India, it may be upset politicians hampering an industry that has the potential to change lives. In most cases, microcredit is doing what the politicians should be doing- helping the country develop.
Michelle Kaffenberger is a former research assistant at The Heritage Foundation and is currently a graduate student in Economic Development at Vanderbilt University.