With microcredit pioneer Muhammad Yunus winning the Nobel Peace Prize you’d think we’d got someone who everyone can feel good about. Practical, non-doctrinaire, solving a problem and changing the world, right?

Wrong, according to Australia’s favourite grinch economist, Helen Hughes, who thinks the whole practice of microcredit is a communist plot.

In an interview with the CIS’s Greg Lindsay in 2000, Hughes noted that microfinance’s advocates believe it “‘empowers’ poor people by giving them, following Marx, access to “the means of production”. Microfinance loans are made to members of groups chosen by lot. All borrowers have to contribute savings, but wait to take out loans until the initial borrowers’ loans are repaid. Microfinance is the very antithesis of the market system”.

Don’t you love the Marx bit? Actually all loans give access to the means of production. We call this “capital” and I can send Hughes some leaflets on it if she’s confused.

The rest of Hughes’s observations are simply wrong. As Yunus has observed, microcredit via the Grameen bank has a lower rate of bad debt than standard lenders.

What Hughes hates is the collective nature of the process – the way it uses trust and social connection, rather than collateral, to guarantee repayment.

She finishes by observing that the collective process places limits on people and that the most entrepreneurial may be penalised, because:

“….he or she may never get a loan”

Right. Because Citibank is just queueing up to lend to your average Bangladeshi.

Hughes was part of the international finance machine during the years when it impoverished vast tracts of the planet. I wonder if she’ll now admit that she was wrong and the Nobel committee was right?

Peter Fray

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