Tuesday, January 18, 2011

Microcredit crisis? Part II

"Microcredit had this magical glow to it," Roodman said. "It's gone away, and that's healthy. But you wouldn’t say that just because of the mortgage crisis, we shouldn’t have mortgages."
David Roodman while being interviewed by Planet Money

The above quote is in response to a recent piece by Mohhamed Yunus in the NY Times about how microcredit was running into problems because private organizations had begun to lend money with the idea of making a profit. I have blogged recently about the microcredit crisis, where default rates on microcredit have sky rocketed in India.

Both Roodman and Yunus know far more than I do about microcredit, but I tend to side with Roodman that what works for Yunus in Bangladesh might not work in other places. As Roodman points out in this excellent longer post on his blog without international capital looking for some profit many wouldn't receive microcredit. Particularly in Latin America and Africa where population density is lower, so reaching borrowers is more costly and interest rates need to increase.

I would also suggest for further interest in the topic this piece in the New Yorker and this Planet Money broadcast

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