Long before I got to Cambodia I was aware of Micro-Credit and how it was ‘meant’ to be the solution to the problems of the poor. Like a magic bullet, it would lift the impoverished people everywhere out of poverty by giving them credit to expand their horizons of opportunity. Somehow there seemed to be plenty of cases springing up everywhere to back up the theory that “all you need is credit”(the Beatles never got that one ). And it seemed to solve, very nicely indeed, the problem posed The Mystery of Capital (Hernando de Soto).
De Soto’s basic proposition is very straightforward: poor people are not poor. Rather, poor people lack effective and enforceable ownership of the resources that they use to construct a livelihood. Therefore, according to de Soto, the most important policy response to poverty should be to vest property rights amongst the poor in those assets that they use, day in and day out, to manage, but which they do not own. Property rights are the key out of poverty. As far as Micro-credit goes he focuses on how sole proprietors & small business have limited access to capital, and also typically a lot of bureaucratic red tape, but that in the right environment & with good capital availability small businesses can thrive. However here in Cambodia this is not the case, for example there may cases of rice farmers, with only one harvest a year, not using their Micro-credit to increase productivity but as merely a way to tide them over until the next harvest.
I believe that, credit is not an end in itself, but a means to generating economic opportunity and growth. Nevertheless, in all the hype we have forgotten to question the basic premise. Ask your self, is lack of credit really the problem? If the large majority of us in the advanced economies are not entrepreneurs, and have had in our past little sophisticated contact with financial services, and if most of us use credit, when we do, for consumption, why do we make the assumption that in the developing countries, the poor are all budding entrepreneurs; that they will use credit wisely for investment in income production, and are ready for all manner of financial services?
So, does credit really initiate economic growth? We cannot assume that simply because people are repaying those small loans that they actually benefited, or that they are indeed the ones most in need of that credit. Or only one of many problems? If the latter, it must be delivered only after other barriers have been removed. At the very least, the hype should not prevent us from recognizing that the problem is substantially more fundamental.
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. I will have to admit that I was surprised that the audience of suburban middle-aged women where really switched on about the topic of International Development. The basic idea is that International Development is all about the fight against poverty.