Microfinance: The Next Bubble?

That's the headline of a recent posting on Newsweek's Wealth of Nations blog. It talks about a recent study by two American economists whose primary conclusion is that while microfinance isn't hurting anybody, there isn't a lot of solid evidence that it's helping them, either.

It may surprise many of you that I don't really find these conclusions to be very troubling, even if they are spot on. And yet, I still believe that microfinance should continue to expand, that it should try to reach as many of the poor as possible, all over the world. Why? Because I don't believe that microfinance is truly about helping poor entrepreneurs escape poverty. I believe it's about helping their children escape poverty. The blunt fact is, most of these poor entrepreneurs do not have the education to become sustainably affluent. Microcredit cannot do a whole lot to help them get one, because they need to be working to pay back their loans, besides having children and a home to maintain.

What microcredit can (and does) do for the poor is provide them with the necessary stability of income to keep their children in school long enough for them to have a good enough education to give them a much higher chance of escaping poverty than they ever had themselves. I have no rigorous studies immediately on hand to prove my claim, but it is what I believe after spending a bit of time in the field and it makes a great deal of sense. If one is looking for massive improvements in the well-being of a country's poor population, one will have to wait roughly 25 years after a significant proportion of that nation's poor population had access to microcredit.

Of course, it would also help immensely if the governments of these countries would meet their poor citizens halfway by focusing relentlessly on improving both quality of education and access to it. But that's a whole different battle.