Battling a Wicked Problem
A school of thought hails microcredit as a social innovation, a messiah to enable people to help themselves out of poverty through entrepreneurship. An opposing school of thought considers microcredit as a capitalist demon ensnaring the poor in poverty and debt. The layman and the million professionals working in this industry are at a loss to make sense of the stories that circulate about microcredit. This book provides this sense-making, useful for students, professionals, investors and researchers who are attracted to this field.
Poverty is a wicked problem, akin to Hydra, the Greek mythological monster with many heads. As microcredit tries to balance multiple objectives to grapple with these multiple heads, it has needed to shift the weapons it uses. The arsenal for this battle has needed new philosophies, changing ethics, differing missions, institutional partnerships, the latest technologies and new products. These rapid innovations have differed in speed across the world, with adaptations in developed and developing countries. This book presents these with many case studies and field research.
It is clear that development initiatives, no matter how financial, cross academic disciplines. At the very least, they affect disciplines such as economics, business management, sociology, history, geography, politics, legal systems in place, as well as science, which is evolving at such a high speed. The book provides this multidisciplinary view and motivates future research and practices.
Chapter 3. Innovations to Make Microcredit a more Powerful Tool
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Innovations to Make Microcredit a more Powerful Tool
We have come half way. We have admitted that poverty is a wicked problem. We have understood that microcredit is one tool in a bag of tools that is addressing one aspect of this problem. We have realized that since social innovations imply social change, providing microcredit leads to other problems at institutional, organizational and individual levels, in keeping with the wicked problem syndrome. Yet, since there seems to be no other panacea, we plod on.
The problems of microcredit relate to balancing depth of outreach with the breath of outreach, which in turn may relate to economies of scale; balancing financial sustainability with lower interest rates, which would lead to an increase in impact; and moderating social expectations and fears with experimentation. In all this, the interest rate question is critical. If microcredit has to succeed, it is clear that interest rates on loans to the poor need to be reduced to acceptable levels. An analysis of median interest rates, as approximated by yields, indicates that the median global yield has come down from about 33 percent in 2003 to about 26 percent in 2012 before rising again to 28 percent in 2014.
We are also able to get data on expenses and returns as a percentage of assets. This data indicates that the total financial returns are about 21 percent of assets. The difference between yield of...
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