December 2016        


Microfinance as “local neoliberalism”

David Mulligan

■ Milford Bateman, Why Doesn’t Microfinance Work? The Destructive Rise of Local Neoliberalism, London: Zed Books, 2010.

Microfinance—the idea of providing small “microloans” and other financial services to budding “micro-entrepreneurs”—has been variously described as the key to empowering women, emancipating the poorest, building social solidarity, and spurring economic development in the Global South.
     The small loans given to the world’s most impoverished will lead, in the words of Muhammad Yunus, microfinance’s leading advocate (and founder of one of the first microfinance banks), to a world where “poverty exists only in museums” within less than a generation. That such a world has not come into being is well known and the failure of microfinance to live up to its heady goals is the subject of Why Doesn’t Microfinance Work?
     Over the course of two hundred or so pages the author, Milford Bateman, systematically debunks the various myths and false claims surrounding microfinance. Not only does he reveal the fact that microfinance has failed to bring any meaningful development to poorer nations, he also demonstrates that microfinance is more likely to have the exact opposite effect and may be best described as an anti-development strategy that blocks any meaningful path forward for developing nations.
     The lauded female empowerment amounted to little more than giving loans to women in cultures where the shame of non-repayment means that women are willing to go to extraordinary lengths to repay loans at extortionate interest, sometimes greater than 100 per cent.
     Most of the promised microbusinesses consisted of primitive street-hawking and other informal activities that not only fail to provide an adequate income but also lead to increased cut-throat competition among the very poorest in society, which can spill over into open violence, as in the case of the barrow-boys of South Africa.
     The desperation of many of the victims of microfinance has seen most of them take out loans for consumption purposes or even to repay other microloans—inevitably leading to bubbles and crashes. The consequence of such crashes is sadly expressed in the spike in suicide rates among indebted Indian farmers.
     The profusion of microfinance and associated informal jobs has also resulted in a crowding out of other possibilities (such as farmer co-ops) and the deterioration of existing capital stock (as funds move away from medium-sized enterprises). This has been seen most dramatically in former socialist states, such as Poland and Yugoslavia, where microfinance has led to a pauperisation of former professionals and the emaciation of a local industrial base painstakingly built over the post-war decades.
     Most pernicious, perhaps, is the fact that, by encouraging individualist entrepreneurship and personal indebtedness, microfinance has severely undermined social and class solidarity wherever it has been trialled and in doing so deprives the world’s poorest of the only strategy that has ever improved the lot of working people: that is, collective class-based struggle against capitalism.
     Overall, Bateman’s work is a must-read for anyone interested in the pernicious consequences of neo-liberal policies in general and microfinance in particular.

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