The Dark Side of Microcredit: How a Solution for the Poor Became a Lucrative Industry
The concept of microcredit has long been touted as a miracle solution to help low-income households launch a project, create a business, or regain financial stability. However, a recent report by the ANPME (National Association of Small and Medium-Sized Enterprises) paints a far less idyllic picture. Instead of improving the lives of the poor, microcredit often transforms precariousness into an economic opportunity... for the institutions that distribute it.
The Hidden Face of Microcredit
According to the ANPME, the hidden face of microcredit lies in the extremely high interest rates, which can reach 30 to 40% per year. Borrowers, lacking alternative financing options, accept these conditions out of necessity and quickly find themselves trapped in unsustainable debt. In theory, a small loan should enable the launch of a project, generate a stable income, and help the borrower escape poverty. In reality, many borrowers take out a new loan to repay an old one, interest accumulates without a real increase in income, and the debt spiral becomes permanent.
A Lucrative Mechanism for Financial Institutions
The report also reveals a lucrative mechanism for financial institutions: traditional banks, which usually refuse to lend directly to households without guarantees, finance microcredit institutions at favorable rates. These institutions then reinject the money in the form of expensive loans to vulnerable populations. The lack of competition in many rural areas allows them to impose their conditions, turning borrowers into captive customers. Poverty thus becomes a profitable market rather than a social issue to be resolved.
Human Consequences
Beyond the numbers, the ANPME highlights the human consequences: constant pressure to repay, fear of late payment, negative social stigma, and fatigue related to the need to work more to meet deadlines. The intended effect – stabilizing the lives of households – becomes a source of permanent stress.
A Call for Regulation
The ANPME does not condemn microcredit in itself, recognizing its potential to promote economic inclusion. However, it insists on the need for clear and transparent rules, effective state supervision, reasonable interest rates, and a genuine focus on human development. Without these safeguards, the instrument intended to support the most vulnerable becomes a lucrative industry built on their needs rather than designed to address them.
