Microcredit: The New Development Paradigm?

“Development projects” in the Third World used to be large-scale projects (dams, irrigation systems, power plants) often organized by outsiders who used their training as economists or engineers to determine what they thought would best help the country in which they were operating. A number of problems emerged with this approach because the outsiders understood neither the economic nor the social impacts of their project. In some cases, they also failed to understand the local environment, and technologies that were successful in North America failed in Latin America, Asia and Africa. The net result of many large development projects was (1) a decrease in the quality of life for poor people as they became poorer not just relative to the rich, but in absolute terms as well, (2) a large debt burden for the Third World country that had to borrow huge sums to finance the project, and (3) environmental degradation. Microcredit, also known as microfinancing, emerged as an alternative to large-scale development projects.

Read the following three articles in the order listed below and answer the following questions. You will need to draw on the articles to answer the questions, but you will also need to think critically about the impacts of microcredit on Third World populations.

http://www.grameen-info.org/mcredit/nytimes.html

http://www.youhelpindia.org/suc_stories/suc_stories_14.html

http://www.sunsonline.org/trade/areas/finance/01290197.htm

1. Answer the following three questions

a. Why are women often chosen for microcredit over men?

b. What are the economic impacts of microcredit at both the family level, and at the societal level?

c. What are the social impacts of microcredit at both the family level, and at the societal level?

2. The capital for microcredit (microfinancing) is often foreign, although lending is done through local banks.

a. In one sentence, define cultural imperialism.

b. Is microcredit a form of cultural imperialism? Discuss.

3. How does microcredit in Third World countries benefit the West? Consider the policy of issuing small loans from both a short-term perspective (the period of the loan), and a long-term perspective. Draw on the first and third Critics of Globalization found on page 4 of your textbook: Diversity Amid Globalization.

4. How might microcredit contribute to new forms of inequality? Draw on the second Critic of Globalization (page 4 of your textbook). Why is Colin Powell, the U.S. Secretary of State, concerned about increasing inequality in the world’s poor countries?