Microcredit Critical Review

Microcredit Critical Review

Part1: Introduction

Many poor people especially those in developing countries live under bad conditions. In most situations, they are willing to work and struggle to become financially independent. But because of lack of savings and capital support from the market, they can hardly get out of this poor tight corner. Providing a credit loan to these poor people seems to be a way to solve this social problem. However, the poor usually have no credit record or collateral. It’s difficult for them to get a loan from the traditional banks. Originally from the Grameen Bank in Bangladesh, microcredit is a financial innovation that provides the poor with a small loan to help them increase income and get employment. This kind of microcredit program has developed in Bangladesh, China and many other developing countries.

Li et al. (2011) conducted research on the effects of a microcredit project in Sichuan Province, China. The Yilong Program was inspired by the microcredit program in Grameen Bank. Hulme (2008) traced the establishment and development of the Grameen Bank in Bangladesh which is considered as one of the earliest banks to initiate the microcredit program.

Both papers are valuable in the microcredit field. Hulme (2008) provided an overview of the evolution of the very early microcredit and raised some related problems. Li et al. (2004) did more quantitative work to investigate a particular Grameen-like Program in China by using financial model. They analyzed the data and used the differences-in-differences (DD) method to help evaluate the effect of the microcredit program. However, Li et al. limited themselves to only one program in China and Hulme gave no data support and evaluation of the Microcredit in Grameen Bank.

Part2: Microcredit in Yilong Country and Grameen Bank

Li et al. (2011) used the data collected in 1999 in Yilong village to investigate the target audience and the economic benefits. They found that although the...