April 9, 2006

We Need You Again, Adam Smith

Like many people in recent years, I have become fascinated by the idea of microcredit/microloans/microfinancing. For those who don't know, microcredit is the practice of giving very small loans (usually between $20-$100) to the very poor.

Surprisingly, the poor are a good credit risk. They succeed when they are given an opportunity. The American Dream, it turns out, can be exported. In fact, there may be no more important export for the Third World.

Alternatively, government aid is notoriously ineffective at delivering aid.

America was built on the principles of laissez-faire economics. We are being both naive and unneccesarily critical to believe that Third World countries need our help in order to succeed. What they really need is our capital, invested in ways that make sense to the investor. Although generally non-profit, many microloan organizations are financially sound, and it is possible to invest in some of them (Accion, for example).

It is time that we do more, but time that we do more in a way that is fiscally responsible, and supportable in the long-term. Like many others, I am more and more convinced that Microfinance really is the answer that we have been looking for.

Additional viewing:
Small Fortunes - a great documentary about the impact of microcredit.

2 comments:

Anonymous said...

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Anonymous said...

Unfortunately, we have wandered far from laissez faire. Interestingly enough, we are being taught from other countries how a free market in a free society should work.

Good for them. Shame on us.

The simple things, as espoused by Adam Smith, work. But people living complicated lives have a hard time trusting that fact.