Microfinance or Enterprises?

Niranjan Rajadhyaksha asks at Livemint "What is the solution to poverty?":

Many have asked why Bangladesh continues to be mired in terrible poverty when it has such a large microfinance sector. The good ol’ basics matter more — property rights, open markets, human capital, innovation etc.
A new policy research paper, Who Gets Credit?, published by the World Bank shows that economies benefit more when money is lent to firms rather than households. India is one of the 45 countries the economists have covered in their study.

The East Asian countries managed to develop brilliantly through channelling much, if not most, of their savings into serious growth-oriented sustainable business projects. This is why many East Asian countries may have started at similar GDP levels as Bangladesh in the 1970s but have since massively outpaced Bangladesh in terms of growth and development. Economics 101 shows conclusively how critical savings are to development, but only if intermediated into growth and productivity enhancing projects. If it goes into rickshaws, kisoks, chicken farms, traders and so on, then the country simply will not develop and sustainably reduce poverty...[continue reading]