Microfinance and other development fairytales
from David Ruccio
The Global South is littered with failed development projects. Each one of them has been designed to solve the problem of underdevelopment without criticizing or aiming to transform the basic structures that cause underdevelopment in the first place.
The latest development fairytale has been microfinance, made famous by the Grameen Bank in Bangladesh and the awarding of the Nobel Prize to its founder, Muhammed Yunus. The idea was to turn poor people, especially women, into successful informal-sector entrepreneurs by extending to them small loans. Now, however, the myths of microfinance are being effectively dispelled.
the microfinance model appears to generate a set of ‘initial conditions’ that because of path dependency tend to give rise to a set of regressive local economic and social trajectories. It fails to adequately respond to the need to promote sustainable development, while it also blocks other development policies that might have more potential for sustainable impact given sufficient (similar) resources. Perhaps the microfinance model can therefore best be likened to a case of ‘bad medicine’ – it has created some temporary feel-good effects for both ‘patients’ (poor individuals, communities, countries) and ‘doctors’ (IFIs, microfinance institutions, the international development agencies) alike, but over the longer term it is likely that it has been gradually debilitating, not curing, the ‘patient’.
I’ve also just learned of a promising new book [ht: ac] by Lamia Karim, Microfinance and Its Discontents: Women in Debt in Bangladesh. Her point is that the microfinance movement, while the darling of western development agencies and academics, has been challenged on the ground, in Bangladesh and elsewhere, from the very beginning.
Certainly, among the millions of poor people who have received small loans, there are cases where individuals have improved their lot. However, the idea of microfinance as a way of ending poverty and promoting development is based on the neoliberal myth that people and the socieities in which they live will be able to move beyond underdevelopment through individual initiative. It wasn’t to engage in land reform or change political institutions, much less challenge the ability of feudal lords and capitalist employers to appropriate and distribute the surplus.
That’s the fairytale that has sustained the microfinance movement, which is now finally being recognized as belonging to the world of make-believe.