Separate and unequal.

Abstract

Microfinance is increasingly being touted as a miracle cure for poverty. If it is why isnt it more widespread and how can it be extended? Although microfinance has been around in various forms for thousands of years its modern incarnation is most closely tied to Mohammed Yunus the Grameen Bank founder. In his autobiography he described how as a professor in Bangladesh he came to understand the importance of finance for the poor. Horrified by the consequences of a recent famine he left the sheltered walls of the university to find out how the poor made a living. In a neighboring village he struck up a conversation with a young mother making bamboo stools. He learned that she needed 22 cents to buy the raw material for the stools. Because the young mother didnt have money she borrowed it from an intermediary to whom she was forced to sell the stools as repayment. She made a profit of only 2 cents. Yunus was appalled: finance would enable her to sell directly to customers. But the intermediary wouldnt offer her finance for then he would lose his hold over her. For want of 22 cents the womans labor was captive. In this vignette many see the worst evil of capitalism: exploitation of labor by capital. But this situation couldnt be further from the essence of free market capitalism: free access and competitive markets. Its the lack of access to a competitive financial market or to a friendly financial institution where the poor can borrow at a reasonable rate that keeps their labor captive. (excerpt)