Microcredit : a cautionary tale

Over the past two decades, microfinance programmes have proliferated and have increasingly been designated as the bearers of neoliberal "solutions" to the complex historical causes of poverty and underdevelopment. At the same time, an enormous literature has sprung up to provide a normative rationale for these policies. A cursory survey of this ever-growing literature leaves one with the impression that the developmental state cannot be assumed to bring about the alleviation of entrenched poverty. Microcredit enthusiasts argue that in contrast to the paternalistic and corrupting influence of postcolonial states, microcredit offers an alternative based on the neoliberal tenets of individualism and free markets. These market-driven policies are enthusiastically embraced as solutions--albeit on a micro-level--to the perceived failures of the "developmental state" paradigm. The ostensible virtues of self-reliance--embodied in the capitalist work ethic, private ownership and individual thrift--are elevated (whether explicitly or implicitly) as the cornerstone of the new orthodoxy of "participatory development." Ideologically, the mantra of self-reliance is used to legitimise an ever-growing network of vested interests as microcredit programs increasingly attract mainstream financial institutions. A rather disconcerting by-product of this market fetish is that most of the literature appears to be immersed in the evangelising language of corporate managerialism. The aim of this very brief article is to provide a sobering antidote to these triumphant claims and to debunk some of the more extravagant myths. There is now the prospect that these schemes may have outgrown their communities and are beginning to divert their focus from the "poorest of the poor" (Sarno, 1998). It has been estimated that microfinance institutions (MFIs) expanded their outreach from a few thousand clients in the 1970s to over 10 million in the late 1990s (ADB, 2000: 13). Doubtless, a critical reappraisal is urgently required before the microcredit bandwagon threatens to derail. It will be argued that microcredit, in itself, is not the solution to poverty but constitutes only one element in a whole plethora of options and requirements, which have to be refined and adapted to local conditions and needs. With the current hyperexpansion of microcredit programmes, several developmental objectives have emerged and come to be associated with them. In order to provoke a "reality check," doubts will be cast on the inflated claims by microfinance enthusiasts that these schemes: (1) have a lasting impact on poverty alleviation for a growing number of "the poorest of the poor," (2) redress gender discrimination and oppression, and (3) most of these projects are self-financing and sustainable in the long run.