Micro-finance--Micro-success...

After pointing out that, "After all, Grameen Bank has been going for 30 years now and Bangladesh is still one of the poorest countries on earth," Daniel Davies argues that schemes such as Nobel Peace Prize winner Mohammed Yunus' may not be the answer to the problems of poverty, in The Guardian online:

It's quite arguable that the real benefit that comes from microcredit is simply the fact that it doesn't give grants. I am in general quite in favour of small user fees for most development aid, based on the principles set out by JK Galbraith in one of his least-known but best books, The Nature Of Mass Poverty. In it, Galbraith argues that poverty is an economic equilibrium and that most very poor populations are "adapted" to it and that most aid will therefore have a temporary effect at best.

He suggests that development aid (as opposed to emergency aid) should instead be concentrated on the "non-adapted minority" of people who aim to leave the poverty equilibrium rather than staying in it. In other words, although I don't think that this specific formulation is in Galbraith's book, the rationing effect of user fees is actually salutary, because it means that the aid will go to people who plan to do something with it. This is in many ways an unfair way to distribute aid, but to be honest we have tried fairness for the last fifty years and the results have been terrible. I suspect that Grameen Bank's successes, where they have occurred, have been a result of selection of this non-adapted minority.

The main effect of the microfinance revolution has been the rebranding of agricultural development banks as "Microlenders". This has happened because although a loan to buy a tractor or provide working capital for a harvest season isn't microcredit, calling it microcredit will bring in a lot more grant money. That's probably good news, because agricultural development banks usually do good work.

So good luck to Muhammad Yunus and I hope he enjoys his prize. But if you work in government or a major aid agency, perhaps take his acceptance speech with a pinch of salt.

You can buy Galbraith's book from Amazon.com, here: