The Foreign Service Journal, June 2021

THE FOREIGN SERVICE JOURNAL | JUNE 2021 43 FEATURE Thomas Dichter has worked in international development for 50 years in 60 developing countries. A Peace Corps volunteer in Morocco in the early 1960s and, much later, a Peace Corps country director in Yemen, he was vice president of TechnoServe, a program officer at the Aga Khan Foundation in Geneva, a researcher on development issues for the Hudson Institute and a consultant for many international agencies, including the United Nations Develop- ment Program, the International Fund for Agricultural Development, the World Bank and USAID, as well as the Austrian and Philippine governments. He is the author of Despite Good Intentions: Why Development Assistance to the Third World Has Failed (University of Massachusetts Press, 2003) and co-editor of What’s Wrong with Microfinance? (Practical Action Press, 2007). The views in this article are the author’s own and do not necessarily represent those of the U.S. government. Whatever Happened to MICROFINANCE? —ACautionaryTale— The success or failure of any development program depends on a thorough grasp of the context in which it is being implemented. BY THOMAS D I CHTER M icrofinance, the provision of financial services to the poor, burst onto the world stage as a solution to underdevelop- ment in the 1970s. The basis of its popularity was the idea that once such services, especially credit, are made available to the poor, they will invest in small businesses that will lead them out of poverty. Muhammad Yunus, whose Grameen Bank in Bangladesh started the movement in the mid-1970s, claimed that “credit is a human right.” And by the late 1990s microfinance had so much momentum that 3,000 people frommore than 140 countries gathered at a Microcredit Summit in Washington, D.C., in 1997 to hear its praises sung by Queen Sofia of Spain, First Lady Hill- ary Clinton, Treasury Secretary Robert Rubin and the presidents of Peru and Uganda. In 2006, Yunus won the Nobel Peace Prize. Yet after a decades-long run, the numbers tell the story of a fading fad. The 1997 summit had predicted 100 million bor- rowers by 2005 and continued growth, as the huge number of “unbanked” people began to avail themselves of microfinance services. As of 2019 there were 140 million borrowers worldwide (80 percent of them women), for a total gross loan portfolio of $124 billion. But measured against the reality that there are 1.7 billion people in the world who are “unbanked” (22 percent of the world population), the expected demand for microfinance services has simply not materialized. In fact, the rate of growth in new clients in the last decade has been going down. Moreover, there is no evidence that access to financial services, especially microloans, has a significant effect on poverty, much