Published on RedPepper.org, by Milford Bateman, Sept. 29, 2011.
The concept of microcredit – tiny microloans used to help establish or expand income-generating microenterprises – was for a long time seen by the neoliberal policy-making establishment as the perfect self-help answer to poverty, unemployment and underdevelopment. Long associated with the passion and practical work of Bangladeshi economist and Nobel Peace Prize recipient, Dr Muhammad Yunus, and a little later with Peruvian economist, Hernando De Soto, great things were promised.
Muhammad Yunus famously said that ‘poverty would be eradicated in a generation’, and the very notion of poverty itself would soon be ‘consigned to a museum’ to which children would have to go on study tours to see what all the fuss was about.
In Latin America, Hernando De Soto predicted that the continent’s economic and social salvation lay with a massive expansion of the informal sector, and the supposedly productive activities of millions of what he termed its ‘heroic entrepreneurs’. With such seductive forms of ‘capitalism for the poor’ on offer, the key international development institutions, and the US government in particular, fell over themselves to finance the idea of microcredit. The microcredit movement was born.
Unfortunately, after nearly thirty years of experience in the field, it is now quite clear that both Yunus and De Soto have turned out to be spectacularly wrong. A growing number of analysts have documented that this is indeed the case in Latin America, Asia and Africa. Typically, those communities that achieved the ‘holy grail’ of the microfinance movement – every poor individual can very easily access a microloan if they want one – have actually gone backwards, condemned to a wasteful and unproductive process of microenterprise entry and exit, an increasingly embedded informalisation dynamic, hyper-competition and self-exploitation (especially involving women in poverty).
This has led to progressively lower volumes, margins, wages and incomes in the microenterprise sector, rising personal over-indebtedness, and a dangerously mushrooming culture of violence within the growing community of urban micro-entrepreneurs all made increasingly desperate for clients in order to survive. Most recently, post-Communist Eastern Europe has seen this deleterious trajectory emerge, as we have documented in a new edited book out this month looking at the specific case of the Western Balkans … //
… The sour reality is, instead, that local poverty alleviation trajectories have everywhere been undermined thanks to the reliance upon individual self-help and the proliferation of largely ‘here today, gone tomorrow’ petty informal microenterprises funded by (often very expensive) forms of commercial microcredit. Accordingly, the sooner the international development community genuinely reflects upon this, the sooner it will be possible to genuinely help poor communities pull themselves out of poverty.
Among other things, in place of failed Yunus-style microcredit and De Soto-style informal microenterprise myths, it seems clear that we urgently need to rediscover and underpin various forms of development-oriented and community-owned and controlled financial institutions, notably financial cooperatives, credit unions, building societies, social venture capital funds and local/regional development banks. (full text).
Link: The illusion of poverty reduction: Microfinance is much-celebrated, but has a terrible record, argues Milford Bateman.