Thomas Dichter has published an essay that is critical of "microfinance" -- the practice of making small loans to poor people in developing countries, the funds from which are intended to bootstrap entrepreneurial ventures, thus providing lasting means to move to self-reliance.

This is interesting. I've recently jumped on the microfinance bandwagon, in terms of thinking its a key piece of the puzzle needed to start making a dent in global poverty. I have not yet had the chance to read this article closely and think about it. I've only browsed over it. I'll probably have more to say later.

The first thing that comes to mind as a comment, is this seems to be looking at microfinance as a whole, and not putting the focus on its usage in a particular market. Not all the global poor are in the same situation. There are some key factors in the equation that must be in place in order for a microfinance strategy to work. A key one, is a non-corrupt government. If people can't trust the state, they are certainly not going to trust the bank. It also requires something along the lines of SHG communities in place. In the same way that everyone needs investment education and advice, any community that is going to adopt any form of modern banking or lending, needs to be taught and understand how it works.

These factors all limit the number of places such strategies can be crafted drastically. I'd like to see an India specific critique along these lines. Microfinance is not just a matter of going somewhere and giving out small loans. There is much that must come with it in order for it to have the desired affect.

Boing Boing: Does microcredit help the developing world