19/04/2018
Microfinance attempts to reduce poverty by extending loans and credit to impoverished borrowers. Research increasingly shows that microfinance is failing to reduce poverty and is instead over-indebting the poor. Rather than empowering impoverished communities, sadly microfinance appears to be worsening existing economic, social and environmental vulnerabilities. See this recently published study by Subhabrata Bobby Banerjee and Laurel Jackson on the negative impact of microfinance in Bangladesh. SmartMoney's experience of bringing financial inclusion to the "very last mile" in rural Uganda and Tanzania is that impoverished borrowers often view loans as "easy money." Instead of investing their loans in ways that generate greater income they spend the new money on medical emergencies, weddings, burials and other expenses that do not generate greater income. Shortly after taking loans borrowers soon find themselves again without money and now having more debt than they can afford to repay. Loan defaulters lose their property and both they and their relatives are jailed. As an alternative approach to poverty reduction, SmartMoney's digital finance solution allows impoverished communities to reduce costs and increase goal-oriented savings. SmartMoney's experience is that when impoverished people earn their new money, they are much more inclined to invest it in ways that increase income because the new money was more difficult to accumulate in the first place.
