Microlending and the Cult of the Entrepreneur

There is an interesting article in the New Yorker’s Financial Page online on micro-lending called “What Microloans Miss.” Surowiecki argues that micro-loans may help to make individual borrowers better off, but it does not help to bring a country out of poverty. While micro-loans are meant to help small businesses grow, they are usually used for non-business expenses, like education or health costs. Most micro-businesses also only have one employee, the owner. But increased numbers of jobs are what will allow a country to pull itself out of poverty. These jobs will normally come not from micro-enterprises, but small and medium sized firms, which provide 60% of the jobs in developed countries, but are largely missing in developing countries (a phenomenon known as the “missing middle”). He says, “[m]icrofinance evangelists sometimes make it sound as if, in an ideal world, everyone would own his own business.” But in fact, only 14% of Americans own their own business, while in a country like Peru that number is almost 40%, not because Peruvians are more entrepreneurial, but because most Peruvians do not have access to the kinds of jobs that Americans have. Surowiecki argues that real poverty reduction strategies should target improving the small and medium sized business sector because these really generate more jobs.

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