Microloans are more beneficial to borrowers living above the poverty line than to borrowers living below the poverty line. This is because clients with more income are willing to take the risks, such as investing in new technologies, that will most likely increase income flows. Poor borrowers, on the other hand, tend to take out conservative loans that protect their subsistence, and rarely invest in new technology, fixed capital, or the hiring of labor.
microcredit could actually do more harm than good to the poorest. One reason being the high interest rates charged by microcredit
Another problem with microcredit is the businesses it is intended to fund. A microcredit client is an entrepreneur in the literal sense: She
raises the capital, manages the business, and takes home the earnings.
But the “entrepreneurs” who have become heroes in the developed world
are usually visionaries who convert new ideas into successful business
models. Although some microcredit clients have created visionary
businesses, the vast majority are caught in subsistence activities.
They usually have no specialized skills, and so must compete with all
the other self-employed poor people in entry-level trades. Most have
no paid staff, own few assets, and operate at too small a scale to
achieve efficiencies, and so make very meager earnings. In other words,
most microenterprises are small and many fail – contrary to the United
Nations’ hype that microentrepreneurs will grow thriving businesses
that lead to flourishing economies.