Beyond Creditworthy: Microcredit and Informal Credit in the United States
Vol. Volume 3, Number 1 June/1998
Ivan Light and Michelle Pham
Ivan Light is Professor Sociology and Michelle Pham is a graduate student in the Department of Sociology, University of California, Los Angeles. An earlier version of this paper was presented at the Annual Meeting of the American Sociological Association, Toronto, Canada, Aug. 4, 1997.
Muhammed Yunus declares that banks co-cause poverty because they inhibit the poor from managing their personal finances or starting a business. Bankers rejoin that banks do not earn enough revenue from the poor and from small business to serve these constituencies without subsidies. Reviewing the literature, the authors conclude that low revenues are the principal reason banks cannot service the poor, immigrants, and small business. They identify the essential problem as a financial system that relies excessively upon banks to deliver all financial services to all markets. Microcredit and informal credit deliver savings and credit to the poor, to immigrants and to small business now. They succeed where banks fail because they draw upon resources of solidarity in the user pool. The policy implication is a mixed-type financial system that relies less exclusively upon banks, and has more room for non-bank institutions such as microcredit and informal credit.
Informal credit, microcredit, financial services for the poor, commercial banking and the poor