UN Report Misleads UNGA on Microcredit
 
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In an article reproduced below entitled, "UN Report Raises Questions About Small Loans to the Poor," the New York Times of September 3, 1998, highlighted a UN report that has misinformed the United Nations General Assembly on microcredit for the poor. The basis of the UN report has been questioned and one response is also reproduced below  

A  report from Secretary General Kofi Annan to UN members this week sounds a cautionary note about the rush to small-scale bank lending - known as microcredit - as an easy cure for world poverty. 
 
“A certain sense of proportion regarding microcredit would seem to be in order,” says the report to the 185-nation General Assembly, which begins its 53rd session next week. 
  
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In recent decades, more than 3,000 small financial institutions, mostly in developing countries, have pioneered the system of lending small amounts of money, usually $100 or less, to people with little or no collateral to enable them to start small enterprises. A large percentage of the recipients of these loans are women. 
 
“This could allow them," the report says, "to be more self-reliant, create employment opportunities and, not least, engage women in economically productive activities." 
 
But the Secretary-General's report raises several warnings. The report, which includes summaries of what UN departments are doing along with non-governmental organizations and some governments, says professional studies of microcredit are beginning to challenge the claims made by some institutions. 
 
In the absence of follow-up work, experts say, it is hard to check the rates of repayment being claimed by proponents or to assess the impact of many microcredit programs. The costs to the borrower can also be steeper than they appear at first. 
 
“In many developing countries," the report says, "overall interest rates are relatively high to begin with, so that the rates charged by microlending schemes are quite high when a risk premium is added. Furthermore, it is not clear if the extent to which microcredit has spread, or can potentially spread, can make a major dent in world poverty.” It adds that the World Ban - the UN agency now coordinating many microcredit programs - has allocated only $218 million for small loans. To reach the target of 100 million families by 2005 set by proponents of microcredit would require $2.5 billion more. The report concludes that microcredit projects are limited in their effect to reduce poverty in the long term unless they are accompanied by other programs. 
 
“Microcredit should be viewed as complementary to the provision of basic services like education, health and nutrition,” it says. “The latter are indispensable in the fight against poverty.”