On Weekday yesterday, Steve Scher interviewed people who are involved with micro-loans. Micro-loans are great - everyone loves them because they seem like the perfect way of helping people pull themselves up by their own bootstraps rather than just giving charity. You feel good about yourself, the recipient feels good about themselves, and the world is a better place. The folks being interviewed were all very positive on micro-loans of course, and talked about how they actually work with local organizations in poor countries who can then give out loans themselves to local people whom they vet. They also talked about how micro-loans are working even in America - one of the women had been given a $500 micro-loan (yes, just $500) and managed to start a business that employs several people now, some of whom have gone off and started businesses of their own. In general the stats are great, especially for women. When women get out of poverty they tend to spend money on their children's education, which helps everyone in the long run.
So what's not to love? Well, the fact that it's not all jolly in the world of micro-loans. Time did a great story on them back in April, and while they included several success stories, they also talked about the darker side - namely that many people are using their micro-loans to pay off debt rather than start a business, or even worse, to buy consumer goods. By the time they're done they're even more in debt than when they started. As micro-loans become more popular, for-profit companies are getting into the game, and their screening process to make sure that the money will be used wisely is much less strict because ultimately they just want to loan the money out (and get up to 60% interest because the borrowers are so high risk!) Also, all the charity money going into micro-loans means that much less is going towards developing infrastructure and other necessities in these countries.
While I like the idea of giving directly and potentially seeing immediate results, I think if people really want to help, they should sponsor a child's education through one of the many programs available - long term that will help raise a generation who can support themselves.