Blog 5: Working towards Equality

Through Chapters 8 and 9 of Poor Economics, Banerjee and Duflo present two arguments backed by several case stories. The difference between the two boils down to the mind set of the family or business taking part in the micro-credits. Through several case studies, it was discovered that the poor in parts of Africa and India follow a similar saving pattern. Since they live on practically no wages, the poor use the money they make for what they consider necessities. They hardly find enough money left over to save. If they do have a higher yield than average, they find it hard to hold on to their savings. The poor have a hard time opening savings account to hold on to their money so they form support groups within the community.

The case studies showed that in many cases, the poor were not opposed to saving for future investments if they could do it right away. For example, when given the option to buy fertilizer right after the harvest instead of waiting for planting season, more farmers took the deal. They understand that investment would provide more. If they buy the fertilizer sooner, the poor will not sell it if another emergency comes up that they would have used the cash for otherwise. In these situations, Banerjee and Duflo would argue that micro-credits might be of good use. Farmers or Entrepreneur could take a small amount of credit to buy the fertilizer and then pay back each year with the more abundant yields.

There are some instances, however, where there simply no will to move up. For these cases, micro-credit would do little good. Just because a family could invest in a barn to house a few more cows, it would do little to change the current situation of the family. Therefor, it would be better to place the money in other things such as health funds and new clothes. Another example of the micro-credit not being a great idea, is when the investment does not equal the same as the yield. Just because the small shop could fill up their store does not mean that it is all being sold. It would not be in their best interest to invest more money in inventory. They would then not make any larger of a profit making it difficult to expand.

I believe micro-credit works on a case to case basis. It is hard to say it always works or never works as can be seen in the few example provided. I do think it would be a good idea to provide the service and educate as many small businesses and entrepreneurs about the system as possible. We cannot rely on the idea to solve the poverty trap completely, but it may be able to help out in percentage of cases.

The country of Lesotho has a micro-credit system in place. In 2005, there was a conference held by the Central Bank of Lesotho to review the policy and legal framework of the micro-finance system. They recognized the importance of small businesses and entrepreneurs in the prosperity of the country. The main issues discovered during the conference were the limited access to markets and institutional support.

Millennium Challenge Corporation Meeting

As discussed in Poor Economics, micro financing does not have as much impact on the economy as the government might have hoped. It does help out with certain groups such as the women workers. Prior to 2006, women found great difficulty in finding credit. Since then the government has put in to place several reforms to provide more micro financing services to the women workers. So not only has the government worked to make improvements among the poor, but they have made great strides into bringing about women’s equality in the workplace.



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