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
List of illustrations Preface List of contributors
ix xi xiii
An overview 1 Introduction Milford Bateman, Stephanie Blankenburg and Richard Kozul-Wright
2 Development prospects in an era of ﬁnancialization Richard Kozul-Wright
3 Impacts of the microcredit model: does theory reﬂect actual practice? Milford Bateman
Country case studies
4 Looking through the glass, darkly: microcredit in Peru Matthew D. Bird
5 Brazil: Latin America’s unsung hero Fernanda Feil and Andrej Slivnik
6 Colombia: a critical look Daniel Munevar
7 Mexico and the microcredit model Eugenia Correa and Laura Vidal
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
Policy implications 13 Delivering development ﬁnance in ‘the time of cholera’: a ‘bottom-up’ agenda for pro-development ﬁnancial resource mobilisation Stephanie Blankenburg
14 Conclusion Milford Bateman, Stephanie Blankenburg and Richard Kozul-Wright
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
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
157 197 205
Chronology of the rise of the Ouarzazate movement against microcredit
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
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.
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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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
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
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