Microloans were meant to reduce poverty, but have devastated millions worldwide

Microcredit, which was supposed to help poor people in developing countries start businesses, has become a poverty trap for many. The system's founder Muhammad Yunus introduced the method in Bangladesh in the 1970s. According to the Wall Street Journal, billions in small loans have devastated millions of beneficiaries.

Microcredit, or small loans to communities that traditional banks do not reach, was supposed to be one of the most effective tools in the fight against global poverty. The idea began in Bangladesh in the 1970s, when Muhammad Yunus, an economist educated in the US, founded Grameen Bank to provide startup capital to poor people to create small businesses.

From promise to trap

Over the decades, the microloan model spread across the world and billions of dollars were pumped into it. The idea was simple: give a small loan, say $50-500, to someone without collateral or credit history, and that person could create a livelihood, repay the loan, and move forward economically. Yunus received the Nobel Peace Prize in 2006 for his work.

But according to a Wall Street Journal investigation, reality often proved different. For many borrowers, interest rates became so high that loan repayment became almost impossible. Loan cycles repeated: new loans were taken to pay off old ones, pushing people deeper into debt.

Systemic problem

In various countries-India, Bangladesh, African nations and Latin American countries-cases have been documented where the pressure of microloans has led to psychological problems, family breakdown, and extreme actions. In community-based group loan systems, neighbouring borrowers were responsible for each other's debts, creating social pressure and conflict.

Critics of microcredit argue that poverty cannot be solved through loans alone; without education, markets and infrastructure, small businesses often remain unviable. While some studies show positive results, there is growing evidence that the system fails to deliver on its original promise and may actually deepen the economic vulnerability of those it aims to help.