Real community-based microcredit banks are not the culprits

David Korten has a detailed but very comprehensible explanation of what kind of microfinance has become abusive, and they are not the community banks.

He concludes his review, which I recommend you read in full, as follows:

“The microcredit experience brings to light a larger principle: the institutional structure of a financial system determines where money flows and who benefits. In short, structure determines purpose.

The transformation of microcredit institutions from a model that serves communities to a model that is “sucking blood from the poor in the name of poverty alleviation” mirrors a similar transformation of the U.S. banking system, which occurred through the process of banking deregulation that began in the United States in 1970s.

Throughout the 1940s, 50s, and 60s the United States had a system of locally owned and strictly regulated community banks, mutual savings and loans, and credit unions, many of them organized on a cooperative ownership model much like the Grameen Bank. They were organized and managed to serve the financial needs of the communities in which they were located and kept money flowing within the community in service to community needs.

Banking deregulation over the past 30 years led to a wave of banking mergers and acquisitions that created too-big-to-fail Wall Street banks devoted to maximizing financial returns to Wall Street bankers and financiers. Rather than supporting local wealth creation, the system now sucks money and real resources out of the community. Both the microcredit experience and the aftermath of the 2008 Wall Street financial crash vividly reveal that the values and interests of Wall Street stand in fundamental opposition to those of Main Street.

Financial institutions can serve communities in pursuit of a better life for all or they can serve global markets to maximize financial returns to Wall Street bankers and financiers. They cannot serve both.

The world does not need more predatory lenders in service to Wall Street. We all need more local, cooperatively owned community banks on the model of Grameen.:

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