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MICROLOANS AND CASH TRANSFERS FOR THE POOR

Social business is not just for folks in developing countries at the base of the pyramid. According to this NY Times article, 45 million Americans live below the poverty line and could benefit from the same microfinance strategies used in developing countries. Grameen America operates 11 offices in the U.S. and has provided $100 million in loans to Americans. Notably, the same social shaming techniques are used for Grameen America microloans as in developing countries — borrowers must form a group and borrow, and one’s ability to borrow more in the future depends on the group’s repayment of the loans. The microloans must be used for entrepreneurial work, but no collateral is required.

A second NY Times article reports on research from Innovations for Poverty Action that found that giving poor Kenyan farmers money (as in cold, hard cash) improved their happiness and decreased stress. Additionally, the Kenyan families ate better and increased their livestock holdings by 51%. Education and health did not improve, but the cash transfers also did not lead to increased spending on alcohol and tobacco.

Should we be relying on microloans or cash transfers as an anti-poverty strategy in the United States? How does our differing perception of poor people in the U.S. versus developing countries affect our willingness to use one strategy versus the other?

Microloans used for entrepreneurial activities are likely to be more well-received in the U.S. because it is a sustainable strategy (the money is repaid and then loaned again) and because it is meant to motivate the recipient to work hard to put the loan to good use (and improve the recipient’s work ethic). Americans overwhelming regard poor people in the U.S. as poor based on their own failings (see Five Stereotypes about Poor People and Education in yesterday’s Washington Post) whereas poor people in developing countries are thought of as the “deserving poor” — people who are poor because of the lack of access to opportunity around them. As I’ve written about before, social enterprise may be so appealing to Americans — and state legislators — because of the American “pull-yourself-up-by-your-bootstrap” culture. Social enterprise softens this motto somewhat — social enterprise seems to offer “a hand up, not a hand out.”

-AP

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