‘This book provides a definitive, and much-needed, assessment of the microcredit movement: from the overselling of its modest initial promise, to its conversion into a new method of exploiting vulnerable people and communities, and to its misconceived embrace by global leaders and institutions What cements this book’s importance for development policy and practice is that its critique is accompanied by an affirmation of the role of productive, accessible financing in sustainable development.’ — Gary Dymski, Professor of Applied Economics, Leeds University Business School, UK ‘This is a must-read book to understand the financialisation of the poor from the perspective of the global microcredit industry The Post-2015 Agenda, supporting financial and digital inclusion to achieve development and to end with poverty, hides the profit obtained by microcredit institutions when granting credit to small entrepreneurs and to those with fewer resources The problem with indebtedness and lack of payment of loans affects the poor, causing greater debt in crisis and recession periods This provides important evidence and insight into what went wrong with microcredit.’ — Alicia Girón, University Program of Asian and African Studies, UNAM, Mexico ‘This unfailingly courageous and carefully researched book shatters the mythology around the microcredit myth that has captured the imagination and funding of the global development industry for far too long It shines a bright light on the links between microcredit and rising indebtedness and financialised, rentier capitalism Microcredit boosters take heed!’ — Ilene Grabel, Josef Korbel School of International Studies, University of Denver, USA This page intentionally left blank THE RISE AND FALL OF GLOBAL MICROCREDIT In the mid-1980s the international development community helped launch what was to quickly become one of the most popular poverty reduction and local economic development policies of all time Microcredit, the system of disbursing tiny micro-loans to the poor to help them to establish their own income-generating activities, was initially highly praised and some were even led to believe that it would end poverty as we know it But in recent years the microcredit model has been subject to growing scrutiny and often intense criticism The Rise and Fall of Global Microcredit shines a light on many of the fundamental problems surrounding microcredit, in particular, the short- and long-term impacts of dramatically rising levels of microdebt Developed in collaboration with UNCTAD, this book covers the general policy implications of adverse microcredit impacts, as well as gathering together countryspecific case studies from around the world to illustrate the real dynamics, incentives and end results Lively and provocative, The Rise and Fall of Global Microcredit is an accessible guide for students, academics, policymakers and development professionals alike Milford Bateman is Visiting Professor of Economics, Juraj Dobrila at Pula University, Croatia, and Adjunct Professor of Development Studies, St Mary’s University, Halifax, Canada Stephanie Blankenburg is Head of the Debt and Development Finance Branch, Division on Globalization and Development Strategies, UNCTAD Richard Kozul-Wright is Director of the Division on Globalization and Development Strategies, UNCTAD ROUTLEDGE CRITICAL DEVELOPMENT STUDIES Series Editors Henry Veltmeyer is co-chair of the Critical Development Studies (CDS) network, Research Professor at Universidad Autónoma de Zacatecas, Mexico, and Professor Emeritus at Saint Mary’s University, Canada Paul Bowles is Professor of Economics and International Studies at UNBC, Canada Elisa van Wayenberge is Lecturer in Economics at SOAS University of London, UK The global crisis, coming at the end of three decades of uneven capitalist development and neoliberal globalization that have devastated the economies and societies of people across the world, especially in the developing societies of the global south, cries out for a more critical, proactive approach to the study of international development The challenge of creating and disseminating such an approach, to provide the study of international development with a critical edge, is the project of a global network of activist development scholars concerned and engaged in using their research and writings to help effect transformative social change that might lead to a better world This series will provide a forum and outlet for the publication of books in the broad interdisciplinary field of critical development studies—to generate new knowledge that can be used to promote transformative change and alternative development The editors of the series welcome the submission of original manuscripts that focus on issues of concern to the growing worldwide community of activist scholars in this field To submit proposals, please contact the Development Studies Editor, Helena Hurd (Helena.Hurd@tandf.co.uk) Reframing Latin American Development Edited by Ronaldo Munck and Raúl Delgado Wise Neoextractivism and Capitalist Development Dennis C Canterbury The Rise and Fall of Global Microcredit Development, Debt and Disillusion Edited by Milford Bateman, Stephanie Blankenburg and Richard Kozul-Wright For more information about this series, please visit: https://www.routledge.com/ Routledge-Critical-Development-Studies/book-series/RCDS THE RISE AND FALL OF GLOBAL MICROCREDIT Development, Debt and Disillusion Edited by Milford Bateman, Stephanie Blankenburg and Richard Kozul-Wright First published 2019 by Routledge Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2019 selection and editorial matter, Milford Bateman, Stephanie Blankenburg and Richard Kozul-Wright; individual chapters, the contributors The right of Milford Bateman, Stephanie Blankenburg and Richard KozulWright to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988 All rights reserved No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Bateman, Milford, editor Title: The rise and fall of global microcredit : development, debt and disillusion / edited by Milford Bateman, Stephanie Blankenburg and Richard Kozul-Wright Description: Edition | New York : Routledge, 2019 | Series: Routledge critical development studies | Includes bibliographical references Identifiers: LCCN 2018018344| ISBN 9781138714083 (hardback) | ISBN 9781138714120 (pbk.) | ISBN 9781315228693 (ebook) Subjects: LCSH: Microfinance Developing countries Case studies | Small business Developing countries | Economic development Developing countries Classification: LCC HG178.33.D44 R57 2019 | DDC 332.709172/4 dc23 LC record available at https://lccn.loc.gov/2018018344 ISBN: 978-1-138-71408-3 (hbk) ISBN: 978-1-138-71412-0 (pbk) ISBN: 978-1-315-22869-3 (ebk) Typeset in Bembo by Taylor & Francis Books CONTENTS List of illustrations Preface List of contributors ix xi xiii PART I An overview Introduction Milford Bateman, Stephanie Blankenburg and Richard Kozul-Wright Development prospects in an era of financialization Richard Kozul-Wright 24 Impacts of the microcredit model: does theory reflect actual practice? Milford Bateman 42 PART II Country case studies 69 Looking through the glass, darkly: microcredit in Peru Matthew D Bird 71 Brazil: Latin America’s unsung hero Fernanda Feil and Andrej Slivnik 93 viii Contents Colombia: a critical look Daniel Munevar 112 Mexico and the microcredit model Eugenia Correa and Laura Vidal 127 Sustainability paradigm to paradox: a study of microfinance clients’ livelihoods in Bangladesh Mathilde Mtrot Cambodia: the next domino to fall? Milford Bateman 10 The instability of commercial microfinance: understanding the Indian crisis with Minsky Philip Mader 11 Collective resistances to microcredit in Morocco Solène Morvant-Roux and Jean-Yves Moisseron 12 Microcredit as post-apartheid South Africa’s own US-style sub-prime crisis Milford Bateman 143 166 194 216 230 PART III Policy implications 13 Delivering development finance in ‘the time of cholera’: a ‘bottom-up’ agenda for pro-development financial resource mobilisation Stephanie Blankenburg 253 255 14 Conclusion Milford Bateman, Stephanie Blankenburg and Richard Kozul-Wright 278 Index 284 ILLUSTRATIONS Figures 4.1 4.2 4.3 4.4 4.5 4.6 4.7 9.1 10.1 10.2 11.1 13.1 13.2 Number of microenterprise and small business borrowers (2001–2016) Microcredit interest vs poverty rates (1995–2015) Average microcredit loan size by year Default rates by microcredit type (2001–2016) Number of borrowers by type of microfinance entity (2001–2016) Default rates and number of borrowers (2001–2016) Default rates by type of microfinance entity (2001–2016) Growth in microcredit outstanding in Cambodia in US$ (excluding ACLEDA) Growth and crash of MFI lending in India Overdue and written-off loans among MFIs in India Client numbers over time Participation in global current account (CA) balances by regions, 2008 and 2017 Changes in Net International Investment Positions (NIIP) by regions, 2008 and 2016 79 80 81 81 84 85 85 169 199 202 221 263 265 Tables 5.1 7.1 7.2 Data on microcredit in Brazil Mexico’s microcredit sector market distribution in 2016 Interest rates on main microloan products 102 133 134 Development post-2015: alternative agenda 273 identifying and then patiently supporting rafts of growth-oriented cooperative enterprises With a network of more than 120 inter-linked cooperatives, mainly industrial worker co-operatives, and employing more than 80,000 full-time member-employees, by the late 2000s, the Mondragón cooperative group was the most successful cluster of cooperatives in the world Importantly, while the global financial crisis was cutting a swathe through Spain’s other banks, including its other Caja banks, the CLP was able to withstand intense financial pressures Thanks to its deep roots in the community, and because of various democratic checks and balances, the CLP managed to successfully steer clear of corruption, mismanagement and rentierist short-termism Outside Europe, examples of creating successful local entrepreneurship under mainly municipal authority include Costa Rica’s Banco Popular y de Desarollo Comunal (Bank of Popular and Community Development, BPDC) and China’s urban and rural credit cooperatives (Girardin and Ping 1997) The latter are a particularly viable example of the gradual integration of local with national financial, and eventually supra-national or regional, efforts at promoting integrated development finance from ‘the bottom up’ Conclusion As the National Executive Committee of the British Labour Party noted in June 1944 in its Full Employment and Financial Policy document: ‘Finance must be the servant, and the intelligent servant, of the community and productive industry, not its stupid master’ (quoted in Pettifor 2017: 1) After decades of hyperglobalisation, financial rentierism certainly has become an influential master of the global community and productive industry, alongside other forms of corporate rentierism and including policies to finance development The argument of this chapter is that regional and inter-regional monetary and financial cooperation between developing countries is the most realistic way forward, at present, to stem the corrosive influence of corporate profiteering and financialisation on development financing This is far from a perfect solution and one that is largely dictated by the lack of political will in high-productivity-led economies to engage seriously with a substantive pro-development reform of the international monetary and financial system, and with the corporate rentierism that is a core obstacle to this All of the policy alternatives proposed here to scale up development finance under such adverse global conditions have a history and a wealth of accumulated national, local and regional experience, in both developing and developed countries Their potential lies not in simply trying to replicate specific features of successful past financial architectures to raise development finance, but in creating a dense and flexible network of local, national and regional state-led financial institutions in developing countries that can deliver credit and finance for development under public control in and on the basis of coordinated development planning, that takes current global economic and political conditions into account 274 Stephanie Blankenburg The ‘stupid master’ that financialised corporate rentierism has become is a formidable opponent to a participatory and productive development finance agenda As several chapters in this book show, the by now evident failure of the microcredit industry to deliver local productive development and poverty reduction has been superseded and secreted away into a new item on the international development finance agenda, termed ‘financial inclusion’ This not only provides global corporations with a gratuitous stake in virgin markets for digitalised financial services, but also opens doors to the plundering of mountains of financial and behavioural digital data for private profit purposes (as well as, potentially, wider political purposes) Equally important are the limitations that have been placed on national and regional policy spaces, in developing countries, to promote and coordinate pro-development financial architectures at national and regional levels, by bilateral investment agreements and so-called megaregional trade agreements between developing and developed regions Even so, regional developing country initiatives to promote development finance along the lines suggested would appear to stand the most realistic chance of beginning to turn the tables on global corporate rentierism and the ‘cholera’ of financialisation Notes In the words of Gillian Tett, ‘[t]he chain that linked a synthetic CDO of ABS [collateralized debt obligation of asset-backed securities], say, with a “real” person was so convoluted it was almost impossible for anybody to fit that into a cognitive map – be they anthropologist, economist or credit whizz’ (Tett 2009: 299) See: http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx?ReportId=96740 and UNCTAD World Investment Report Regional Fact Sheets 2017 for Africa at: wir17_fs_Africa_en-1.pdf For a detailed discussion of the SUCRE, see UNCTAD (2011: 42–46) References Atkinson, A.B (ed.) (2004) New Sources for Development Finance UNU/WIDER Studies in Development Economics and Oxford Scholarship Online Oxford and Helsinki: WIDER AU/ECA (2014) Illicit financial flows report of the high level panel on illicit financial flows from Africa Paper commissioned by the AU/ECA Conference of Ministers of Finance, Planning and Economic Development Bateman, M., Girard, B., and McIntyre, R (2006) Promising practices: An integrated cooperative approach for sustainable local economic and social development in the Basque region of Spain Report on a UNDP Study Visit to Spain New York: UNDP Benn, J., Sangare, C and Hos, T (2017) Amounts mobilised from the private sector by official development finance interventions Guarantees, syndicated loans, shares in collective investment vehicles, direct investment in companies and credit lines OECD Development Co-Operation Working Paper no 36.Butcher, W and Galbraith, J (2015) Microfinance control fraud in Latin America Forum for Social Economics, 1–23 doi:10.1080/07360932.2015.1056203 Development post-2015: alternative agenda 275 D’Arista, J (2009) The evolving international monetary system Cambridge Journal of Economics, 33(4): 633–652 EBRD (2012) Multilateral development bank principles to support sustainable private sector operations MDB outcome document, 27 April Available at: ebrd.com/downloads/news/mdb.pdf Epstein, G.A (2005) Financialization and the World Economy Cheltenham: Edward Elgar Publishing Ertürk, I., Froud, J., Johal, S., LeaverA and Williams, K (eds) (2005) Financialisation at Work London: Routledge Friedman, D (1988) The Misunderstood Miracle: Industrial Development and Political Change in Japan Ithaca, NY: Cornell University Press Gerschenkron, A (1968) Continuity in History and Other Essays Cambridge, MA: The Belknap Press of Harvard University Press Girardin, E., and Ping, X (1997) Urban credit co-operatives in China Development Centre Technical Paper No 125 Paris: OECD Goglio, S., and Alexopoulos, Y (eds) (2012) Financial Cooperatives and Local Development London: Routledge Gottschalk, R (2016) The Role of Development Banks in Promoting Growth and Sustainable Development in the South UNCTAD/GDS/ECIDB Geneva: United Nations Available at: http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=1699 Gottschalk, R and Poon, D (2017) Scaling Up Finance for the Sustainable Development Goals: Experimenting with Models of Multilateral Development Banking UNCTAD/GDS/ECIDB Geneva: United Nations Available at: http://unctad.org/en/PublicationsLibrary/gdse cidc2017d4_en.pdf Grabel, I (2011) Not your grandfather’s IMF: global crisis, ‘productive incoherence,’ and developmental policy space Cambridge Journal of Economics, (35): 805–830 Griffith, J (2017) Financing for development: current issues in international development cooperation Background paper prepared for the First Session of the UNCTAD Intergovernmental Expert Group on Financing for Development, November Available at: http://unctad.org/en/pages/MeetingDetails.aspx?meetingid=1442 Guérin, I., Labie, M and Servet, J-M (2015) The Crises of Microcredit London: Zed Books Hanni, M and Titelman, D (2017) Domestic resource mobilisation in Latin America and the Caribbean: Fiscal policy challenges Background Paper prepared for the First Session of the UNCTAD Intergovernmental Expert Group on Financing for Development, November Available at: http://unctad.org/en/pages/MeetingDetails.aspx?meetingid=1442 Häring, N (2017) How India became Bill Gates’ guinea pig: a conspiracy as recounted by the main actors 21 February Available at: http://norberthaering.de/en/32-english/news/ 784-gates-india-demonetization Hutchinson, F (ed.) 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Project Syndicate, May Available at: www.project-syndicate.org/commentary/china-silkroad-fund-development-financing-by-richard-kozul-wright-and-daniel-poon-2015-05# comments Kregel, J (2015) Emerging markets and the international financial architecture: a blueprint for reform Working Paper no 833 Levy Economics Institute at Bard College, Annandale-on-Hudson, NY Kregel, J (2018, forthcoming) The clearing union principle as the basis for regional financial arrangements in developing countries In UNCTAD (ed.) Debt Vulnerabilities in Developing Countries: A New Debt Trap? Vol II: Policy Options and Tools Geneva: United Nations, pp 67–122 Lazonick, W (2013) The financialization of the U.S corporation: what has been lost, and how it can be regained Seattle University Law Review, 36(2): 857–909 Mader, P (2018) ‘Contesting financial inclusion’ Development and Change, 49(2): 461–483 Minsky, H (1986) Conflict and interdependence in a multipolar world Studies in Banking and Finance, 4: 3–22 Ocampo, J.A., Kregel, J and Griffith-Jones, S (eds) (2007) International Finance and Development London: Zed Books Pereira, J (2017) Blended finance for development Background paper prepared for the First Session of the UNCTAD Intergovernmental Expert Group on Financing for Development, November Available at: http://unctad.org/en/pages/MeetingDetails.aspx? meetingid=1442 Perez Caldentey, E., Cipoletta G., and CruzM (2014) Un análisis comparado de los sistemas de pago en América Latina Presentation at UNCTAD/ECLAC Conference, Santiago de Chile, June 2014 Pettifor, A (2017) The Production of Money: How to Break the Power of Bankers London: Verso Polanyi Levitt, K (2013) From the Great Transformation to the Great Financialization: On Karl Polanyi and Other Essays London: Zed Books Schumpeter, J.A ([1934] 2008) The Theory of Economic Development New Brunswick, NJ: Transaction Publishers Storm, S (2018) The financialization of everything Development and Change Special Issue: Financialization and Economic Development: A Debate on the Social Efficiency of Modern Finance, 49(1) Available at: http://onlinelibrary.wiley.com/doi/10.1111/dech.12385/full Tett, G (2009) Fool’s Gold How Unrestrained Greed Corrupted aDream, Shattered Global Markets and Unleashed a Corporate Catastrophe London:Little, Brown Toporowski, J (2013) International credit, financial integration and the euro Cambridge Journal of Economics, 37(3): 571–585 Toporowski, J (2017) From Marx to the Keynesian revolution: the key role of finance Review of Keynesian Economics, 5(4): 576–585 Toye, J (1993) Dilemmas of Development 2nd edn Oxford: Blackwell UNCTAD (2011) Regional Monetary Cooperation and Growth-Enhancing Policies: The New Challenges for Latin America and the Caribbean New York: UN UNCTAD (2014) Trade and Development Report, 2014: Global Governance and Policy Space for Development New York: UN UNCTAD (2015) Trade and Development Report, 2015: Making the International Financial Architecture Work for Development New York: UN UNCTAD (2016) Trade and Development Report, 2016: Structural Transformation for Inclusive and Sustained Growth New York: UN Development post-2015: alternative agenda 277 UNCTAD (2017a) Trade and Development Report, 2017: Beyond Austerity: Towards a Global New Deal New York: UN UNCTAD (2017b) UNCTAD World Investment Report Regional Fact Sheets 2017 for Africa Available at: wir17_fs_Africa_en-1.pdf United Nations (2017) Financing for Development: Progress and Prospects Report of the Interagency Task Force on Financing for Development New York: UN Varoufakis, Y (2011) The Global Minotaur.:America, the True Origins of the Financial Crisis and the Future of the World Economy London: Zed Books Weiss, L (1988) Creating Capitalism: The State and Small Business since 1945 Oxford: Blackwell Woods, N (2008) Governing the global economy: strengthening multilateral institutions International Peace Institute Policy Paper, June Zingales, L (2017) Towards a political theory of the firm New Working Paper Series No 10, Stigler Center for the Study of the Economy and the State, University of Chicago, Chicago 14 CONCLUSION Milford Bateman, Stephanie Blankenburg and Richard Kozul-Wright [T]he promoters of micro-credits promise to deliver us from poverty and emancipate women In fact, it is the opposite that happens: we find ourselves trapped in a spiral of over-indebtedness, launching infeasible micro-projects that, instead of keeping our heads above water, push us deeper into poverty, stress, humiliation and violence We are at the end of our tether! (‘The Bamako Declaration’)1 Global rentier capitalism loves debt Financiers and other holders of assets thrive on creating debt, because they are enriched by interest payments and fees And they are constructing new forms of debt as well as maximizing old ones (Standing 2016: 135) The microcredit model was once seen as the only international development intervention that simply could not be gainsaid in polite company One would inevitably be seen as unconscionably blasé with regard to the problem of global poverty, or even as outright ‘anti-poor’ The situation has changed quite significantly in recent years Many leading academic economists, mainstream economic and social commentators and one-time high-profile advocates have now come around to accepting that the microcredit model has actually failed; it has not had a meaningful positive immediate impact on poverty, nor has it improved the chances of longer-term sustainable local economic and social development and individual empowerment Human rights groups and poverty campaigners have also begun to wake up to the damage that communities in the Global South are increasingly saying has been inflicted on them by microcredit The common complaint is that they are often forced into microcredit debt that they can neither repay, nor can they anything with to generate an income in a poor community with very little spending power One recent example of this growing resistance to microcredit in Africa is the so-called ‘Bamako Declaration’, cited in the epigraph, Conclusion 279 which was put together by a large group of women in Mali, demanding an alternative intervention to resolve their poverty and deprivation The inevitable result of such challenges and resistance to the microcredit model, as one-time leading microcredit advocate Jonathan Morduch (2017) has pointed out, is that ‘Aid agencies and foundations have been left feeling confused, disappointed, and perhaps betrayed — and have started moving on.’ The game has changed This book is meant as a contribution to the wide-ranging and ongoing critical reassessment of the role played by the microcredit model in the Global South It was designed to focus upon only those countries that have built up a very significant microcredit sector, the better to assess the problems of microcredit in countries that have succeeded in extending outreach to almost every poor individual, as well as assess the likely future problems to be encountered in those countries yet to attain significant microcredit penetration In addition, however, with the tarnished microcredit model now effectively being rescued by the World Bank in conjunction with a number of the world’s leading financial institutions and quietly incorporated into the wider ‘financial inclusion’ model, this book offers an urgent comment on the advisability of this move Should the microcredit model be retained to operate as before but under a new name, or is there more of a case to be made that a completely new model of ‘developmental’ local finance is required in the Global South? We hope that the analysis of the real impact of the global microcredit model in this book will provide important food for thought as to how this ongoing issue can be successfully resolved in such a way as to benefit the global poor rather more than Wall Street This rise of the microcredit model very centrally involved one person: the UStrained Bangladeshi economist and future (in 2006) Nobel Peace Prize-winner, Dr Muhammad Yunus, who famously described the (his) microcredit model as nothing less than a miracle intervention that would ‘eradicate poverty in our lifetime’ The new generation of neoliberal policymakers that emerged in the late 1970s then fell in love with the microcredit model How could they possibly resist a new and supposedly very effective market-driven individualist private sector-led solution to rising global poverty that, as many also hoped, would effectively ‘bring capitalism down to the poor’? Inevitably, the global financial sector was introduced to the microcredit model, and it too fell in love with it, though for a different reason – profit The world’s leading financial institutions and investment houses were soon falling over themselves to work with, and profit from, the largest and most profitable microcredit institutions (hereafter MCIs) Spectacular profits were soon being made by those individuals and institutions seeking to put hundreds of millions of the global poor into debt, and even some of the leading advocates from the microcredit sector itself quietly opted to join in the feeding frenzy underway.2 Who could blame the international development community for concluding that the ‘financialization’ of the global poor, as Philip Mader (2015) has called it, was financial innovation at its best, combining the pursuit of profit with poverty reduction? By the mid-2000s the international development community had convinced itself that the microcredit model was the most impactful poverty reduction intervention of all time 280 M Bateman, S Blankenburg, R Kozul-Wright What happened then was astonishing and represents a cautionary tale of hubris rapidly turning to embarrassment The celebration surrounding the microcredit model abruptly ended Much new evidence began to emerge after 2007 to show that the microcredit model had actually had very little to no impact on global poverty.3 Even worse, the evidence also began to stack up to the effect that the microcredit model has worked in the longer term to weaken precisely those local economies in the Global South that achieved the most significant increases in the local supply of microcredit If we now understand that to meaningfully address poverty and under-development in the Global South ultimately requires structural transformation and industrial upgrading (UNCTAD, 2016), then the stark reality that is emerging is that the microcredit model tends to lead in the opposite direction: that is, it has manifestly helped to deindustrialize, infantilize, informalize and disconnect local economies in the Global South Crucially, this negative outcome leads us back to the demand by neoliberal policymakers after 1980 that financial intermediation should be overwhelmingly the responsibility of profit-driven private sector institutions In practice, as the private sector began to take over financial intermediation responsibilities from a range of more development-driven financial institutions (development banks, earmarked investment funds, and so on), it was inevitable that lending to unproductive microenterprises would balloon while lending to the far more productive small and medium-sized enterprise (SME) sector would be progressively abandoned This growing profitdriven ‘crowding out’ phenomenon has helped to frustrate, and in many cases throw into complete reverse, the development ambitions of nearly all of the most microcreditfriendly countries in the Global South Finally, by creating an entirely new market of indebted poor individuals from which high interest rate payments, fees and charges could be extracted, and the debts to the poor securitised and sold on to the financial community at large, the global poor became part of the new world of ‘financialization’ Astutely described by Guy Standing (see the second epigraph) as an era in which it is possible for the financial sector to make fantastic financial gains by adeptly manufacturing entirely new forms of debt out of almost nothing, the resulting move to ‘financialize the poor’ was a master-stroke of corporate financial strategy But bringing Wall Street into the very heart of the microcredit model proved to be a major setback for the global poor, if not, on the reckoning of some, a disaster of almost biblical proportions Reckless lending, greed and profiteering, mass individual over-indebtedness, regular ‘microcredit meltdowns’ and fraud on a scale not unlike that on Wall Street prior to the events of 2008, are all now a familiar part of the global-local landscape directly created by the operation of the microcredit model Concerted efforts to falsify the history of the microcredit model (as in the case of the Andhra Pradesh crisis in 2010, see Chapter 1, note 10) cannot hope to hide this decidedly unpalatable fact The need for change The rich evidence provided in the country chapters in this volume illustrate the many ways that the microcredit model has gone astray in practice Pushing the Conclusion 281 global poor into more and more debt has not worked to resolve poverty, but instead has all too often simply pushed the poor into irretrievable poverty and vulnerability The desperate struggle by the owners of individual microenterprises to find enough customers in order to survive, a situation exacerbated by large numbers of microcredit-induced new entrants, represents a situation of over-competition that can only retard and destroy a local economy, not raise it out of poverty and under-development Cramming as many of the poor into ultracompetitive entrepreneurial ghettos was thus not a real solution to poverty and under-development in the late twentieth and early twenty-first century in Brazil or Bangladesh or Bolivia or South Africa, any more than it was in the nineteenthcentury London when Henry Mayhew (1851) wrote his classic book London Labour and the London Poor, and there is no reason to think that it will be otherwise in the years to come What particularly comes across from almost all of the country chapters covered in this volume is the way that reconfiguring microcredit into a conventional forprofit business model has destroyed even the more modest sense of it being one among many initiatives required to alleviate poverty While never as impactful in its earlier non-profit phase as its main proponents have claimed, as a for-profit business model, the only claim to success is in terms of the mere numbers of poor individuals that have become clients However, this ‘progress’ says absolutely nothing at all about the impact on the global poor It is wrongly confusing an operational metric – outreach - with the success of the intervention itself In truth, as many of the chapters in this volume document, the commercialised microcredit model has spawned a multitude of setbacks for the global poor We are therefore moving into an era when the international development community must begin to focus less on what went wrong and why, but on a very much more important question – what we now? If much of this volume has been spent adumbrating the many pitfalls and problems associated with the global microcredit model (if not, a critic might contend, simply rehashing what many now accept is the reality!), then it is important now to begin to much more concretely deal also with the alternatives to the microcredit model and to its equally ineffective successor, financial inclusion Much more effective local and national financial institutions and developmental financial policies are now urgently needed to remedy the problems created by forty or so years in which microcredit has problematically reshaped and undermined the functioning of local economics right across the Global South It is important, therefore, that, as Stephanie Blankenburg outlines in Chapter 13, alternatives to promote productive development finance systematically already exist at local, regional, national and international levels, such as regional payment systems, South-South multilateral development banks and countless successful national development banks Specifically in terms of local financing for development, we must highlight the many successes of the local financial cooperatives and subnational state development funding institutions that have come to the fore in many countries, particularly in the last fifty or so years We mean here, for example, the 282 M Bateman, S Blankenburg, R Kozul-Wright local financial structures in northern Italy that after 1945 went on to play a massively positive financial intermediation role that led to that region’s incredible economic and social success One also cannot ignore the hugely important lessons arising from the Mondragón Cooperative experiment in the Basque region of northern Spain, which showed that a ‘working people’s’ bank – the Caja Laboral Popular – could very efficiently provide the needed back-up to a major cooperative enterprise development intervention Germany’s long-standing regional and local state banks also need no introduction, composed of a strong inter-connected network of state and cooperative banks geared up to contribute to economic development Post-war Japan’s networks of local credit unions and municipal development funds were critical to its supply chain development in many of its most important industries And then, finally, there are Brazil’s community development banks and China’s Urban Credit Cooperatives (UCCs) and Rural Credit Cooperatives (RCCs), both of which stand out as local financial models that have successfully promoted sustainable local economic development and poverty reduction Numerous other examples exist, many of which have been established based on the experiences just recounted For such local alternatives to find a stronger foothold and to contribute more systematically to national and local economic development will, however, require broader changes in regional financial architectures capable of promoting development finance and of propelling domestic resource mobilisation in the South A much more comprehensive treatment of these obvious alternatives to microcredit, including their drawbacks, would inevitably require a volume all of its own But what these particular models, as well as economic history in general, show without a doubt is that concrete alternatives exist to the failing global microcredit model if there is a mind to use them Notes See Mader (2017) For example, the CEO of the US-based FINCA microcredit advocacy and investor body, Rupert Scofield, in 2013 was rewarded with a generous $711,000 pay check that rose to $1.4 million in 2014 (base salary plus pension contribution and advance tax contribution) This Wall Street-style reward package is paid for in two ways: first, out of donations to FINCA, and second, through the very high interest rates charged to FINCA’s clients in the field See Haering (2015) As former Centre for Global Development economist, David Roodman, candidly admitted, ‘On current evidence, the best estimate of the average impact of microcredit on the poverty of clients is zero.’ See Walt (2012) The entrepreneurial poor described by Mayhew were not the architects of their own escape from poverty The eradication of mass poverty only came about in London (as elsewhere in the UK and wider still) because of wider processes of industrialisation and state regulation (e.g., minimum wage legislation, regulations to improve working conditions) and, especially after World War II, thanks to extensive social welfare provision (e.g., unemployment insurance, the national health service, free education) In fact, as was widely recognised at the time, the existence of the entrepreneurial poor in the mid-1800s was generally seen as a factor blocking the radical changes to the economic and political Conclusion 283 system required to end poverty This was because the entrepreneurial poor – Marx called them the ‘Lumpenproletariat’ – were too wrapped up in their own immediate survival and thus had no time to join or energy or resources to assist with the various forms of collective mobilization and mass movements then getting underway in the country and that ultimately helped create the policies and programmes that led to the eradication of poverty (see Bateman, 2010: 32) References Bateman, M (2010) Why Doesn’t Microfinance Work? The Destructive Rise of Local Neoliberalism London: Zed Books Haering, N (2015) ‘The microcredit mafia lowers its socially responsible mask’, Norbert Haering’s Money and More, 30 November Available at: http://norberthaering.de/en/ 32-english/news/505-finca Mader, P (2015) The Political Economy of Microfinance: Financialising Poverty London: Palgrave Macmillan Mader, P (2017) ‘‘We are at the end of our tether!’ What African women are trying to tell the microfinance industry’, Governance across Borders, 20 December Available at: https:// governancexborders.com/2017/12/20/we-are-at-the-end-of-our-tether Mayhew, H ([1851] 1985) London Labour and the London Poor London: Penguin Classics Edition Morduch, J (2017) ‘Microfinance as a credit card’, Limn, Available at: https://limn.it/m icrofinance-as-a-credit-card/ Standing, G (2016) The Corruption of Capitalism: Why Rentiers Thrive and Work Does Not Pay London: Biteback Publishing Ltd UNCTAD (2016) Trade and Development Report 2016: Structural Transformation for Inclusive and Sustained Growth Geneva: United Nations Walt, V (2012) ‘Does microfinancing really work? A new book says no’, Time magazine, January Available at: http://content.time.com/time/world/article/0,8599,2103831,00 html INDEX ABSA 232 ACCION 73, 77, 90, 94, 113, 115 ACLEDA 168, 169, 170, 182, 185 African Bank 59, 61, 234, 235, 241, 242, 243, 244, 247 African National Congress (ANC) 230 Akula, Vikram 7, 202, 207 AMK 172, 173, 178, 186 Amsden, Alice 49, 51, 56, 94, 130–131 Andhra Pradesh 7, 15, 61, 129, 194, 199, 200–210 anti-development 9, 53, 57–62, 135 Apartheid 16, 46, 59, 230–247 ASA 4, 54, 145–160 Asian Development Bank (ADB) 178, 181, 269 Asian Infrastructure Investment Bank (AIIB) 269–270 Atkinson, Anthony 26, 27, 266 austerity 34, 46, 237, 264 Banca de Oportunidades 117–118 Banco Compartamos 6, 7, 77, 82, 83, 128, 136 Banerjee, Abhijit 8, 50, 82, 86, 135, 195, 218 Bangladesh 4, 5, 8, 14–15,43–48, 54–56, 143–161 Bateman, Milford 3, 42, 166, 230, 278 Bernanke, Ben 60 bias 18, 121, 173 Biddulph, Robin 181–182 Black, William 8, 29, 60, 170, 243–244 blended finance 259 BNDES 96–97 Bolivia 51, 58 ,61, 268–269, 281 Bond, Patrick 235–236, 247 BRAC 4, 54, 82, 145, 148 Brazil 13, 93–108, 267–270 Breza, Emily 18 BRICS 35, 269 Brinsden, John 188 Bruhn, Miriam 46 Bylander, Maryann 175, 178, 183 Caja Laboral Popular (CLP) 272–273, 282 Cambodia 15, 56, 166–187 Cambodian Microfinance Association (CMA) 171 Canter, Andrew 243 Capitec Bank 59,234–235,241–247 celebrities CEOs 7, 16, 170, 173, 180, 184, 216, 244 CGAP 93, 220, 233 Chang, Ha-Joon 9, 51–52, 95 Changarrization 136 Changarros 137 Chiapas 129, 132–133, 138–139 clearing unions 266–268 Clinton, Bill 18 Clinton, Hilary 3, 18 Coad, Alexander 46 collateral 72–75, 95–97, 101, 104, 130, 181–187, 222, 234 Colombia 13–14, 112–122 Index 285 commodity boom 13, 48, 89, 105 Consumption credit consumption spending 16, 48, 54, 59, 93, 107, 170, 175, 236–237 cooperatives 75–78, 88–89, 94–95, 117–118, 271–273, 281–282 corporate finance 255–260 cooperative financial institutions 271 corporate rentierism 17, 255–274 Crediamigo 97, 100–105 crowding out 33, 55, 137, 176–177, 240, 280 Davis, Mike 4, 47 De Soto, Hernando 4, 43, 130, 134, 182 decoupling 35 default 76–89, 180–183, 196–212, 216–227, 244–246 deindustrialization 9, 122 Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) 73 Development 3–17, 24–39, 255–274 development banking 269–271 development finance 17, 51, 86, 255–274, 281–282 displacement 45–46, 135, 237–238 domestic resource mobilisation 259–260, 282 Duvendack, Maren 8, 48, 209 economic development 52–53, 114–116, 166–176, 231–238, 258, 282 Efficient Market Hypothesis (EMH) 196 Ejido 130 empower 43, 200 enabling environment entrepreneurship 5, 43–44, 86, 273 Epstein, Gerry 10, 25 exit 33, 45–46, 180, 237 extend and pretend 88, 121, 245–246 Faroohar, Rana 10, 28, 61, 184 Finance 1–17, 24–39, 255–274 financial inclusion 9, 13, 93–108, 112–122, 212–213, 233–234, 279–281 financialisation 24–39, 255–274 FINCA 136, 282 FinMark Trust 233–234 Fin-tech (financial technology) 9, 11, 89 flawed assumptions 18 Friedman, Milton 44, 272 Galbraith, James 26–29, 258 Galbraith, John Kenneth 8, 46, 60 Global Financial Crisis 8, 24, 174–176, 257–273 Global South 3–13, 44–54, 60–62, 278–281 global ‘trade-money’ nexus 261, 264 globalisation 257, 273 Grameen Bank 3–6, 44–54 Great Recession 31 growth 8–16, 25–37, 257–273 Harvey, David 5, 10, 61, 184, 241 Hayek, Friedrich 44 Hedge units 196, 209 Hulme, David 4, 51, 144–147, 180 hyper-globalization 12 impact evaluation 6–15, 103–107, 173 India 55–56, 194–213 industrial upgrading 58, 280 inequality 26–39, 230–247 informal sector 46–59, 105–106, 112–113, 135–139, 174–179 informalization 56–57 Initial Public Offering (IPO) 6–7, 128 Inter-American Development Bank (IADB) 73–75, 113–114, 269 international development community 3–17, 60–62, 231–234, 279–281 Internaitonal Finance Corporation (IFC) 58, 120, 240 International Labour Organisation (ILO) 4, 27–28, 44 James, Deborah 236 job churn 44–46, 237 Jobra 43, 55 Karnani, Aneel 55 Kay, John 25, 28 Keynes, John Maynard 26, 29, 196, 267–268 Khandker, Shahidur Kinnan, Cynthia 18 Kirkinis, Leon 242, 244 Knotts, Katherine 173, 186 Kreditanstalt für Wiederaufbau (KfW) 270 Kregel, Jan 266–268 Landesbanken 271 land-loss 178, 182–183 Lavinas, Lena 98, 107 Lazonick, William 28–29, 42, 50, 256 Local Economic Development Agency (LEDA) 167–168 Liv, Dannet 177 livelihood 143–146, 156–161, 208–209 286 Index Local development 42, 48–49, 271–272 Lula (Luiz Inácio da Silva) 93–108 Mader, Philip 15, 61, 194–213 Mtrot, Mathilde 14–15, 143–161 marketization 148, 217 Marx, Karl 62, 194 Mexico 14, 127–139 Microfinance Institutions (MFIs) 144–161, 198–213 Mibanco 77, 82–83, 89 Micro Global Credit Program (MGCP) 113–114, 117 microcredit 3–17 microcredit institution (MCI) 4–16, 43–62, 75–77, 86–89, 96–105, 112–121, 127–137, 168–187, 216–247 Microcredit meltdown 8–15, 61, 89, 180 microenterprise 9–16, 42–63, 73–89, 105–107, 167–187, 236–240 micro-entrepreneurs 62, 73, 96–100, 114–115, 132 microfinance 94–106, 114–120, 131–136, 183–187, 194–213 microfinance industry 74, 101, 114, 144–145, 194–207 microloan 3–16, 54–62, 98–100, 114–122, 133–138, 156–161 Migration 15, 174–183 Milanovic, Branko 26–27 Minsky Moment 197, 210–212 Minsky, Hyman 15, 194–212 missing middle 54–59, 240 mission drift 153 MixMarket 144, 148–149 Mondragón 272–273, 282 money-lender 43, 171–175, 182 Morduch, Jonathan 45, 86, 145, 147, 279 Morgenthau Plan 53 Morocco 16, 216–227 Moyo, Dambisa 239 M-Pesa 11 multilateral development banks (MDBs) 258, 269, 281 multi-loans 245 multiple loans 159, 204, 218–219 National Development Financial System (NDFS) 94 neoliberal policies 18, 127 neoliberalism 143 neoliberalize 55 Nightingale, Paul 46 Nobel Peace Prize 4, 6, 279 Osmani 45, 48, 148, 150 Otero, Maria 5, 50 Ouarzazate 219, 221–224 outreach 84, 89, 135, 153 over-indebtedness 8–15, 48–61, 78–87, 107–108, 120–121, 134–139, 177–187 Pagés, Camila 131 Palmer-Jones, Richard 48 Peru 12–13, 71–89 Pitt, Mark Ponzi units 196–197, 209–211 Porteous, David 233 poverty 3–17, 278–282 poverty trap 14, 121 practice drift 14, 145, 153, 161 primitivize Primitivizing 52 productive investment 25, 39, 256–258, 266 productivity 25–37, 52–53, 260–262 profit-investment nexus 259–261, 264, 270 pro-poor 48, 104, 107, 147, 186–187, 255 public credit 130, 255 Rajan, Raghuram 18 Randomised Control Trial (RCT) 8, 86, 135, 148, 218 regional payment systems 266–267, 281 Reinert, Eric 52–53 rent 10, 28–30, 257–259 rentier 10–17, 28–29, 255–268 rentier capitalism 12, 278 repayment rate 88, 130, 216–227, 245 Rhyne, Elisabeth 5, 8, 50, 57 ,61, 143 Rodrik, Dani Roodman, David 50, 86, 134 Rozas, Daniel 136, 169–179, 219–220 Saambou 232, 247 Sathapana Bank 168, 170, 185 savings 29, 33, 73–89, 149–151 Say’s Law 42, 49 secular stagnation 12, 33 self-employment 9–16, 42–60 Seng, Kimty 175 Simanowitz, Anton 173, 186 SKS 7, 199–207 SME 54–59, 112–119, 122, 129–131 Social developmentalism 99, 108 South Africa 16, 59–61, 230–247 spaza shops 238 Speculative units 197, 209–210 Stassen, Riaan 241–242 Stiglitz, Joseph 26, 28, 99 Stockhammer, Engelbert 28 Index 287 Structural Adjustment Program (SAP) 58 structural transformation 12, 14, 38, 56–59, 256–271 sustainability 14, 32, 36, 95–101, 143–161 sustainable development 12, 50–62, 238–239, 258, 264 Sustainable Development Goals (SDGs) 144, 258–259 sub-national development banks 271 UNDP 77, 167, 218 União Nordestina de Assistência a Pequenas Organizaỗừes (UNO) 95 USAID 5, 9, 50, 75, 77, 93–94, 218 Toporowski, Jan 256, 262 Yunus, Muhammad 3–17, 42–62 UNCTAD 33, 36–38 Zakoura 216–220 Washington Consensus 39, 57–58, 74, 271 World Bank 4–13, 58, 130 ... understand the financialisation of the poor from the perspective of the global microcredit industry The Post-2015 Agenda, supporting financial and digital inclusion to achieve development and to... and Fall of Global Microcredit shines a light on many of the fundamental problems surrounding microcredit, in particular, the short- and long-term impacts of dramatically rising levels of microdebt... Capitalist Development Dennis C Canterbury The Rise and Fall of Global Microcredit Development, Debt and Disillusion Edited by Milford Bateman, Stephanie Blankenburg and Richard Kozul-Wright For more