A Billion Bootstraps

A review of Smith & Thurman's book

This books subtitle, "Microcredit, Barefoot Banking, and the Business Solution for Ending Poverty", really tells you the scope of what the authors intend for their book: no less than ENDING POVERTY. While I think microcredit is a powerful innovation, that is perhaps a bit of an overreach.

The better part of the book is written from the philanthropist's perspective which, I must admit, I found a little offputting. Yes, I know there are people out there working hard to figure out the best way to donate the vast sums of money they've accumulated over their lives. I, however, have yet to accumulate the aforementioned vast sums so I am still working that problem. When A Billion Bootstraps delves into the details of how microcredit really functions on the other hand, it shines.

Smith & Thurman make an excellent argument that charity actually holds back development. They point to the example of a famine caused by crop losses in Africa. Free food gets donated and routed to famine stricken areas. Consumers prioritize the free food to the detriment of local producers who are already reeling from crop losses. Instead of getting the boon of temporary high prices for their crops that could lead to reinvestment in agriculture, charity drives the price of their goods to effectively zero. Then, when the next agricultural hardship inevitably comes along, it leads to a worse famine because there are fewer farmer due to so many being driven out of business!

Of course, since so much of the microcredit industry is dependent on donors, one wonders if they are kicking the legs out from under their own argument. In terms of ROI the authors make a much stronger case: because such a high percentage of loans are paid back, the money can be reloaned multiple times giving many families the opportunity to advance with the same capital. It's the old adage of give a man a fish, feed him for a day; teach a man to fish, feed him for a lifetime writ large to some extent.