Micro- Credit

All businesses need financing at some stage when starting up and during growth. Hudon (2008) makes a compelling argument for the right to credit for the poor. This argument is supported by other proponents in the field such as Mohammed Yunus (PBS 2007, cited in Hudon 2008): “Nobody can get the right to food, to shelter, to education and to health until he creates his or her own income strength.” If there was ever a need to confirm the importance of the access to credit to stimulate the economy and enable capitalism to work, then the years 2008-2009 provided it. The poor practices in the major financial systems led to a dramatic reduction in the willingness of financial institutions to lend, with a catastrophic impact on economies around the world. If the established financial world order cannot operate without credit, then it would appear unrealistic to expect the poor to be able to improve their economic situation and run successful businesses without access to credit. However, micro-entrepreneurs frequently do not have access to those resources, knowledge and finance that might enable them to be more effective, more productive, to respond to changes in the local environment and to recognise the potential for growth and development. Of the world’s 6 billion people living in low-and lower-middle-income economies, 80 per cent do not have access to formal sector financial services. In many cases this may be an insurmountable barrier to escaping poverty and a constraint on economic growth in general. Hudon (2008) also raised a number of other issues, not just about the ‘right’ to credit but the means whereby such credit is made available. Robinson (2001) argues that commercial micro-finance is not appropriate for extremely poor

people who are badly malnourished, ill and without skills or employment opportunities. For these people, micro-finance (or micro-credit) is the next step – after they are able to work. Which begs the question – where is the work? People living in extreme poverty exist below the minimum subsistence level. They include those who are unemployed or underemployed, as well as those who are so poorly remunerated that their purchasing power does not permit the minimum calorie intake required to overcome malnutrition. How do people in developing economies, with little or no education, get their foot on the first step of the economic ladder? How do they move to a position where they could access commercial micro-credit? Simply receiving assistance to feed themselves will not facilitate this. Gaining the necessary education to find employment in an increasing industrialised economy is an effective but long-term proposition. The distinction between the extremely poor and the economically active poor is not precise and it is perhaps wise to focus on the purpose of the loan and the commitment of the entrepreneur rather than trying to assess ‘poverty’ in ways that might not be appropriate to the local situation. There is a dilemma. Micro-credit very obviously does benefit a large number of people. Does the cost of this assistance to the borrowers matter? Is it appropriate to see the poorest of the poor as potential sources of profit for the rich? The need for enterprise development and its contribution to societal and economic outcomes have been clearly identified. Does this justify the means?