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The rise and fall of global microcredit development, debt and disillusion


‘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


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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).
4. Reframing Latin American Development
Edited by Ronaldo Munck and Raúl Delgado Wise
5. Neoextractivism and Capitalist Development
Dennis C. Canterbury
6. 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
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© 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
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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: 1 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
1 Introduction
Milford Bateman, Stephanie Blankenburg and Richard Kozul-Wright

1
3

2 Development prospects in an era of financialization
Richard Kozul-Wright

24

3 Impacts of the microcredit model: does theory reflect
actual practice?
Milford Bateman

42

PART II

Country case studies

69

4 Looking through the glass, darkly: microcredit in Peru
Matthew D. Bird

71

5 Brazil: Latin America’s unsung hero
Fernanda Feil and Andrej Slivnik

93


viii Contents

6 Colombia: a critical look
Daniel Munevar

112

7 Mexico and the microcredit model
Eugenia Correa and Laura Vidal

127

8 Sustainability paradigm to paradox: a study of microfinance
clients’ livelihoods in Bangladesh
Mathilde Maîtrot
9 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


x List of illustrations

8.1
8.2
8.3
8.4
10.1
10.2

The microfinance sector in Bangladesh, 2010–2015
Top 10 countries globally by active borrowers
Importance of deposits to finance institutions in
South Asian countries
Households’ livelihood trajectories by MFI and
poverty status
Types of financial behaviour in Minsky’s framework
Quantitative indicators for the Indian microfinance industry

148
149

157
197
205

Chronology of the rise of the Ouarzazate movement against
microcredit

224

149

Box

11.1


PREFACE

This book has its origins in an UNCTAD Expert meeting on ‘Microfinance,
Development and Debt’ held in Lima, Peru, on 16 and 17 December 2015. The
meeting was called to better understand the downside risks to the microcredit
model that, while apparent as far back as 2010, had largely been ignored by the
international development community. One reason behind that reluctance was the
fear of further invalidating the wider market-driven model of development –
neoliberalism – that came to prominence in the early 1980s and which had provided the wind behind the sails of the global microcredit movement. Yet with
reckless lending and massive individual over-indebtedness becoming embedded
features all over the Global South, with ‘microcredit meltdowns’ an undeniable
occurrence, with no real evidence of microcredit alleviating poverty, and with
huge corporate and individual fortunes being amassed by supplying microcredit to
the global poor, the feeling we had was that the fundamental problems needed to
be further examined and urgently addressed before it was too late. At the back of
our minds, of course, were the lessons belatedly learned from the global financial
crisis that began in 2007–2008, the central one being that whenever narrow
ideology and rampant greed triumph over the pursuit of the common good, bad
things can happen. So the decision was taken to publish the papers presented in
Lima with Routledge. Several other contributors were then invited to take part in
the project in order to make the volume a genuinely global examination of the
problems of microcredit. In addition, major updates of a number of chapters presented in Lima also had to be undertaken because of the many new and mainly
adverse developments in the interim. Hopefully, this book will be one more step
towards concrete measures emerging within the international development community to genuinely address the fundamental problems we raise.
We wish to thank all of the contributors to the event in Lima in December
2015, especially those who made the long journey there from Europe and North


xii Preface

America, and also those who came in later to provide chapters in the book that
enabled us to produce it as more of an international volume than a Latin American
one. Thanks also the able staff at FORO International who hosted the two-day
event in Lima at the end of 2015, especially to Fernando Prada Mendoza and
Sylvia Esnaola.
Milford Bateman would like to thank colleagues at UNCTAD, particularly
Richard Kozul-Wright and Stephanie Blankenburg, for creating such a stimulating
work environment during his three-month assignment in Geneva in early 2017 as
the idea for this book progressed.
Finally, to those of our colleagues and friends who kindly read and provided
comments on various draft chapters, notably Ngoc Nguyen and Billi Glover, we
also offer our sincere thanks.


CONTRIBUTORS

Milford Bateman is a freelance consultant on local economic development
policy, a Visiting Professor of Economics at Juraj Dobrila University of Pula,
Croatia, and an Adjunct Professor of Development Studies at St Mary’s University
in Halifax, Canada. He is the author of Why Doesn’t Microfinance Work? The
Destructive Rise of Local Neoliberalism (Zed Books, 2010).
Matthew D. Bird is a Professor at the Pacífico Business School, Universidad del
Pacífico in Lima, Peru. His research seeks to design and evaluate innovative interventions that better harvest local solutions to solve common social challenges. He
received his PhD in Human Development from the University of Chicago, where
he studied cultural influences on economic decisions, an interest developed after
working as a management consultant in Barcelona, Spain.
Stephanie Blankenburg is Head of the Debt and Development Finance Branch,
Division on Globalization and Development Strategies, UNCTAD.
Eugenia Correa is Professor of Economics at the Economics Faculty of the
Mexico National and Autonomous University. Before obtaining her PhD in Economics, she worked for a short time at the Mexican Treasury and in the National
Statistical Institute. Her publications include Dollarization and Financial Development:
The Experience of LA Countries (Routledge, 2016).
Fernanda Feil is the Head of the Economic Research Department at the Brazilian
Development Association (ABDE). She holds a BA in Economics from the University of São Paulo and a BA in Business and Commerce, from Monash University, Australia, plus an MA in Economics from the Federal University of Rio
Grande do Sul, Brazil.


xiv List of contributors

Richard Kozul-Wright is Director of the Division on Globalization and Development Strategies, UNCTAD.
Philip Mader is a research fellow at the Institute of Development Studies in
Brighton, UK. He is the author of The Political Economy of Microfinance: Financializing Poverty, (Palgrave Macmillan, and is editing (with Daniel Mertens and Natascha van der Zwan) the Routledge International Handbook of Financialization.
Mathilde Maîtrot is a Lecturer in International Development and Global Social
Policy at the Department of Social Policy and Social Work at the University of
York, UK. In 2014, she completed her PhD in Development Policy and Management in the Global Development Institute at the University of Manchester,
where she also holds an Honorary Fellowship.
Jean-Yves Moisseron is a Research Director at IRD (Institut de Recherche pour
le Développement), Visiting Professor at University of Paris 1 Panthéon-Sorbonne
and EHESS (School for Advanced Studies in the Social Sciences), and Affiliate
Professor at IPAG Business School. His research focuses on European institutions,
the Arab world (Egypt, Lebanon, Morocco, Tunisia) and the Euro-Mediterranean
Partnership.
Solène Morvant-Roux is Assistant Professor in Socio-economy at the Graduate
School of Social Sciences, University of Geneva, where she teaches development
studies. She is a SNSF (Swiss National Science Foundation) grantee. She has published several peer-reviewed papers on microfinance and co-edited (with I. Guérin
and M. Villarreal) Microfinance, Debt and Overindebtedness: Juggling with Money
(Routledge, 2013).
Daniel Munevar is a post-Keynesian economist from Bogotá, Colombia. He
specialises in the areas of fiscal policy and debt. He has an MPAff at the LBJ School
of Public Affairs at the University of Texas at Austin, USA. Previously he has been
advisor on fiscal issues to the Ministries of Finance in Greece and Colombia, as well
as special advisor on Foreign Direct Investment for the Ministry of Foreign Affairs
in Ecuador.
Andrej Slivnik is an economist based in the Economic Research Department at
the Brazilian Development Association (ABDE), participating in research projects
on Brazilian macroeconomics, development financial institutions and the national
development financial system. He holds a BA in Economics from the State University of Campinas – Unicamp, Brazil, and is an MA candidate at the History
Department, in the same university, completing research on the origins of the
Brazilian social security system.


List of contributors xv

Laura Vidal is a specialised consultant in development policy and public policy for
health and social progress. She has a Master’s degree in Ethics and Biotechnology
from the University of Sheffield, UK, and a PhD on Development Studies with a
research focus on nanomedicine, regulation and firms.


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PART I

An overview


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1
INTRODUCTION
Milford Bateman, Stephanie Blankenburg and
Richard Kozul-Wright

Microcredit is a macro idea. This is a big idea, an idea with vast potential …
Microcredit projects can create a ripple effect – not only in lifting individuals out of
poverty and moving mothers from welfare to work, but in creating jobs, promoting
businesses and building capital in depressed areas … Microcredit … has positive
consequences on the entire community and creates a fertile soil for democracy to
grow because women and men can hope in the future of the planet again. We must
realize that our destiny is strongly linked to the destiny of the poorest on this planet!
(US Secretary of State, Hillary Clinton, remarks at the Microcredit Summit
in Washington, DC, 3 February 1997)

The rise of microcredit
Of all the development fixes devised during the neoliberal era, nothing has captured
the hearts, minds and pockets of the international development community, philanthropists and key Western governments quite as much as microcredit.1 Conventionally
defined as providing the poor with a small loan – a microloan – to help them establish
or expand an informal business venture, the microcredit model was widely seen as not
simply a means to alleviate poverty, promote local economic development and
engender social progress, but the basis of a more peaceful and harmonious development path for the world. Who could seriously resist supporting those individuals in
poverty who were attempting to exit their predicament through an informal microenterprise and providing new employment opportunities for their communities?
Former US Presidential candidate, Hillary Clinton was certainly not alone in declaring
that microcredit was nothing less than a revolution in finance for low-income people
in the Global South.
The microcredit model is most closely associated with Dr Muhammad Yunus,
the US-trained Bangladeshi economist, founder of the iconic Grameen Bank, and


4 M. Bateman, S. Blankenburg, R. Kozul-Wright

co-recipient (with the Grameen Bank) of the 2006 Nobel Peace Prize. With ideological backstopping from the Peruvian economist Hernando de Soto, who argued that
Latin America’s historically entrenched poverty could be addressed by extensive
deregulation and extending and strengthening property rights to the informal sector
(de Soto, 1989; 2000), Yunus was able to sell the microcredit model to the new generation of neoliberal policy-makers that came to the fore in the 1980s. Starting in his
native Bangladesh, he first mobilized international financial support to establish his
Grameen Bank, which was officially launched in 1983. Several other new microcredit
institutions (hereafter MCIs) were soon getting off the ground in Bangladesh, also
with international support, notably BRAC and ASA. Very quickly Yunus began to
claim that the Grameen Bank was ‘proof’ that massive poverty reduction was possible
with the help of microcredit (Yunus, 1989), a claim that was made on the basis of very
little evidence or independent assessments (see Bateman, Chapter 3, this volume).2
Nevertheless, he was invited to play a cheerleading role in helping the international
development community to establish and finance a raft of new MCIs elsewhere in
Asia, Africa and Latin America. The global microcredit industry was born.
The basic objective of this new global industry was, essentially, to harness what
were seen as the latent ‘animal spirits’ of the self-employed in the large informal
sector of the Global South which, it was claimed, were being suppressed by an
indifferent or hostile state bureaucracy and local officials. It greatly helped that the
attention of the international community on the informal sector had already been
raised by a series of international reports and missions in the 1970s by the International Labour Organisation (ILO), the Organisation for Economic Co-operation
and Development (OECD) and the World Bank (ILO, 1972; Hart, 1973) which
concluded that fighting poverty needed to move beyond the more state-centred
strategies of import substitution-industrialization to a more employment-based and
outward-oriented development strategy that could deliver ‘basic needs’ (Arndt,
1987: 92–106). What Hans Singer called a strategy of ‘incremental redistribution’
was adopted by Robert McNamara at the World Bank as the key to poverty
reduction and it instrumentalized the informal sector as a means to deliver basic
needs to the bottom 40 per cent of the global population. From the 1980s
onwards, as the turn to more market-friendly policies took a firmer grip on
development thinking, actively promoting the informal sector became the default
solution to poverty and deprivation in the Global South (Levitsky, 1989; Stewart
et al., 1990). The microcredit model fitted in perfectly with this new policy
direction by providing what many saw as the crucial missing ingredient – capital –
that, by definition, the global poor did not possess. And even if the conditions of
informal sector employment were poor, if not as Mike Davis (2006: 186) has
remarked ‘[a] living museum of human exploitation’, this was downplayed in favour
of the aspirations of budding entrepreneurs. With many local communities soon
being reached by microcredit, the global poor were now expected to individually
escape their own poverty and deprivation by engaging in informal sector activities,
thus effectively ‘bringing capitalism down to the poor’ (Arun and Hulme, 2008).
Neoliberal policymakers and key Western governments could hardly contain their


Introduction 5

excitement at what they felt they were about to achieve both practically and
ideologically.
But before the microcredit model could fully conquer the developing world and
succeed in converting all of the global poor into ‘card-carrying capitalists’ (Harvey,
2014: 186), there was one important problem that had to be resolved. The initial
source of funding for the microcredit sector, notably including the Grameen Bank
itself, involved a variety of subsidies provided by the international donor community,
host governments, private foundations, and other sources. Neoliberal policy-makers
found this subsidization aspect to be a fundamental operational flaw in the microcredit
model: it did not accord with their ideologically-driven ideas concerning ‘best practice’ operating principles for an organization, which they insisted must be based on the
concept of ‘full cost recovery’. No matter how beneficial in alleviating poverty, neoliberal policy-makers felt that they could not excuse MCIs from abiding by this fundamental ideological imperative. More practically, even if very generous state and
other subsidies continued to prop up the microcredit sector, it was realized that the
enormous scale required to reach into every community in the Global South would
simply never be reached on this basis.
The answer to this conundrum was to push forward with a new commercialized
microcredit model, one that prioritized above all else the need to install in every MCI
the drive for profitability and financial self-sufficiency, while still retaining its original
social mission to prioritize the needs of the poor. With the World Bank and USAID
taking the lead (see Committee of Donor Agencies [for Small Enterprise Development
and Donors’ Working Group on Financial Sector Development], 1995; Robinson,
2001), the original Grameen Bank-inspired subsidized microcredit model was marginalized in favour of a for-profit microcredit model. From the mid-1990s onwards
start-up financial support, technical assistance and many other forms of support would
simply not be forthcoming unless an MCI was structured to operate as a commercial
undertaking, while all existing MCIs were instructed to commercialize their lending
practices as soon as possible.3 Governments in the Global South were expected to
further support the move by comprehensively de-regulating their local financial systems in order to create the best possible ‘enabling environment’ for for-profit microcredit to flourish.
As promised by its advocates, the new commercialized microcredit model succeeded in quickly expanding the supply of microcredit across the Global South.
Such was the progress achieved that, by the early 2000s, a growing number of
countries and regions in the Global South had achieved the microcredit industry’s
‘holy grail’ – poor individuals in these locations could now very easily access as
much microcredit as they might want. The ‘absurd gap’ that supposedly existed
between the supply of and demand for microcredit and which prevented the global
poor from benefitting as much as they might (see Robinson, 2001: 41, note 1) had
been closed. High-profile commercialization advocates such as Maria Otero and
Elisabeth Rhyne (see Otero and Rhyne, 1994) confidently began to predict a ‘new
world’ of productive micro-entrepreneurship, massive poverty reduction and social
progress.


6 M. Bateman, S. Blankenburg, R. Kozul-Wright

Against this ideological backdrop and the rapid expansion of microcredit into
virtually every community in the Global South, the microcredit model not only
galvanized much of the international development community but even gained
support from celebrities and in the popular press.4 It also greatly helped the World
Bank in selling the microcredit model when two of its own economists, Mark Pitt
and Shahidur Khandker, were seemingly able to provide important evidence to
show that microcredit ‘worked’, especially involving female clients (see Pitt and
Khandker, 1998). In spite of many serious flaws in their study that worked to overestimate the positive impact – flaws that were only revealed much later on, however5 – Pitt and Khandker provided the global microcredit movement overall, and
Muhammad Yunus in particular,6 with just what they were desperately looking for
at the time: detailed evidence from a supposedly unimpeachable source that the
microcredit model did work in practice as its advocates had all along said that it
would. In its wake came numerous other studies and impact evaluations produced by
supportive academics, microcredit advocates, boutique consultancy companies, and
international development agency staff, virtually all of which claimed to confirm the
view that microcredit was very effective development intervention (see the summary
of many previous evaluations by Odell, 2010; see also Remenyi and Quiñones,
2000; Wright, 2000).
By the mid-2000s the global microcredit industry had reached its zenith as the UN
was successfully petitioned from across the political spectrum to jump on board the
microcredit band-wagon, agreeing to designate 2005 as the ‘UN Year of Microcredit’.
A wide range of activities were undertaken and sponsored all across the Global South
involving virtually all of the UN’s various agencies and key individuals. However, the
supreme confidence of the global microcredit movement was most amply demonstrated at its annual conference – the Global Microcredit Summit – that took place in
Halifax, Canada, in November 2006. Here, to wild applause, it was announced that
the goal of providing microcredit to 100 million poor individuals, mainly women, had
been reached and would be exceeded very shortly. The former head of the International Labour Organisation’s social finance unit, Bernd Balkenhol (2006, 2), summed
up the general feeling of everyone present by claiming that microcredit was ‘the
strategy for poverty reduction par excellence’ (underlining in the original). And just
after the Halifax Summit, apotheosis finally arrived when Muhammad Yunus and the
Grameen Bank were formally co-awarded the Nobel Peace Prize, an award that
Director of the Microcredit Summit Campaign, Sam Daley-Harriss, called ‘a tsunami
of positive recognition’ (Lloyd, 2006). The rise of the microcredit model appeared to
be unstoppable.

But pride goes before a fall
Quite unexpectedly, however, shortly after the Nobel investiture in Oslo, the case
put forward in favour of microcredit began to fall apart. The turning point came in
April 2007 when Mexico’s largest microcredit bank, Banco Compartamos, undertook an Initial Public Offering (IPO). The IPO process inadvertently revealed two


Introduction 7

crucial things: first, in spite of its self-described role in poverty reduction, it became
clear that there was no evidence whatsoever that Banco Compartamos had been
instrumental in resolving poverty among its poor, mainly female, client-base7; and,
second, and even more damaging, the IPO revealed a simply astonishing level of
private profiteering engineered by Banco Compartamos’s co-CEOs, its senior
managers and its investors. In other words, in one of the MCIs long held up by the
global microcredit sector as an exemplary case of ‘best practice’, the conventional
narrative that defined microcredit had actually been quietly and completely overturned; microcredit was less about helping the vast numbers of individual clients
and much more about enriching the small elite who owned and/or controlled the
MCI.
Adverse reaction to the revelations unearthed by the Banco Compartamos IPO
was immediate and came from all corners of the international development community. For some long-time microcredit advocates, the event spelled the beginning
of the end of their association with the sector.8 For a time it looked as though
things might change and parts of the commercialization model might be rolled
back in order to reduce the profiteering possibilities associated with microcredit.
But this did not happen. Instead, the exact opposite trajectory transpired: opportunistic individuals and institutions were made aware of the enormous profit possibilities offered by engaging with the microcredit sector, and a good number of
them immediately set about copying and building upon the financial model
uncovered at Banco Compartamos. By far the most notable of these early followers
involved SKS, the leading MCI in the state of Andhra Pradesh in India. Its own
IPO in 2010 spectacularly enriched its main promoter and CEO, Vikram Akula,
before the reckless lending strategy adopted before the IPO, and emulated by the
other large MCIs against which it competed, led to the collapse of the entire
microcredit sector in Andhra Pradesh shortly after (see Bateman, 2012).
With a great many more instances of looting, profiteering and outright fraud
emerging across the Global South involving many of the supposedly most ethical
MCIs (Sinclair, 2012), one thing thus began to become clear: the global microcredit industry had effectively been taken over by greedy individuals, opportunistic
so-called ‘social entrepreneurs’, aggressive private banks and hard-nosed investors.
The global poor were no longer the primary intended beneficiaries of the commercialized microcredit sector, but were now increasingly viewed as merely its
hapless victims.
As if this extreme profiteering and greed were not bad enough already, in the
wake of the Banco Compartamos scandal, the evidence long held up as validating
the development impact of the microcredit model came under closer scrutiny and
quickly began to fall apart. Unfettered by the long-standing practice (if not contractual obligation) to design any impact evaluation or academic study in such a
way as to reflect positively on the for-profit microcredit model, a steady stream of
new academic studies and impact evaluations began to paint a much less positive
picture of the microcredit sector. By far the most important individual study in this
regard was the UK government-funded systematic review undertaken by


8 M. Bateman, S. Blankenburg, R. Kozul-Wright

Duvendack et al. (2011). This report was unofficially meant to provide some justification for the UK government’s own extensive microcredit programmes in Africa and
Asia, but what it provided instead was the most comprehensive denunciation to date
of the accumulated evidence used to demonstrate a positive impact from microcredit.9
Concluding that the global microcredit movement had effectively been ‘constructed
upon foundations of sand.’ (ibid.: 76), this final word on the matter sent shock waves
through the microcredit industry. The important work by Duvendack et al. was not
long after followed by a raft of six major randomized control trial-based (RCT) impact
evaluations of microcredit (the RCT being a supposed benchmark of evaluation), the
results of which were summarized by Banerjee et al. (2015). The conclusion reached
was that, overall, microcredit had had very little to no positive impact on the ground.
In spite of the enormous effort and financial costs involved in ensuring very easy access
to microcredit for the poor, there was almost no identifiable improvement in their
lives. Their summary was supremely telling, finding that, ‘The studies do not find clear
evidence, or even much in the way of suggestive evidence, of reductions in poverty or substantial improvements in living standards. Nor is there robust evidence of improvements in social indicators’ (ibid.: 13; emphasis added). Coming from several long-time
microcredit enthusiasts,10 this was a damning conclusion.
Another feature of the global microcredit sector also came under closer
scrutiny around 2007. Not unlike the case of sub-prime lending by Wall
Street’s financial institutions which directly precipitated the global financial
crisis in 2008 (Galbraith, 2014), and before this the Saving and Loans (S&L)
crisis of the 1990s in the USA (Black, 2005), reckless lending had become an
intrinsic feature of the global microcredit sector. The quite dramatic rise in
client over-indebtedness and ‘microcredit meltdowns’ were the inevitable
results. Appropriately enough, the first such episode of reckless lending leading
to a ‘microcredit meltdown’ emerged in the very first developing country to be
pressured into commercializing its microcredit sector: Bolivia (see Rhyne,
2001). Since then, a whole host of the ‘role model’ countries in the Global
South have followed suit (Guérin et al., 2013; Guérin et al, 2015: see also
several of the chapters in this volume). Pointedly, it was only because of
determined behind-the-scene intervention from foreign interlocutors that
the microcredit sector in Bangladesh averted a market-driven meltdown sometime around 2008–9. With disaster looming, and the obvious possibility that
the entire microcredit model would be fatally wounded as a result, the leading
MCIs were instructed to halt their breakneck growth strategies and agree to
share the market (Chen and Rutherford, 2013). Perfectly efficient markets and
responsible agents might be the staple fare in mainstream economics textbooks,
but they hardly ever model or predict the reality outside of the classroom (on
this, see Mirowski, 2013; Keen, 2017).
As a result of the above combination of events and advancing knowledge, even
the staunchest microcredit advocates and sympathetic academic economists have
been forced on to the back-foot. Some have simply gone quiet, while some moved
into new areas of work. Others have sought to muddy the waters, however, by


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