Microcredit is not free from criticism. While we know that it can reduce poverty and improve well-being through higher employment, higher household incomes, improved nutrition and education of the borrowers’ children, we also acknowledge that microcredit can drive poor households into a debt trap, through interest and exploitative lending practices. This is why we only work with Microfinance Institutions (MFIs) that use ethical and interest-free alternative financing tools.
This approach is supported by evidence that indicates that in many cases, microfinance, especially credit-plus programmes, have facilitated the creation and growth of businesses. It often generates self-employment, but debt and compound interest can be crippling.
Moreover, we also know from our own research and from some of the top academics in the field, that microcredit is just one factor influencing the success of a small businesses, which is conditioned by the economy or particular market developments.
It is also noteworthy that trying to objectively evaluate the impact of microcredit on a global or a local scale is methodologically challenging. Even the few rigorous evaluations available on microcredit are based on randomised control trials, widespread in the pharmaceutical industry. They are, however, problematic due to the complex and uncontrollable circumstances of human existence that simply cannot be measured reliably.