Introduction

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Notes

¹ A perhaps more familiar term is that of ‘microfinance’. However, strictly speaking microfinance now refers to the much wider set of small-scale financial interventions that includes microcredit and also micro-insurance, micro-savings and micro-transfers. Nonetheless, in many accounts, the term microfinance continues to be used interchangeably with the term microcredit.

² Almost right from the beginning in the 1970s, and especially in the USA, the microcredit model has gamered an enormous amount of positive coverage in the popular press and TV. Massive celebrity support has also been individually forthcoming from Hollywood (Natalie Portman, Matt Damon), politics (most notably Bill and Hilary Clinton), the music industry (Bono), business (Bill Gates through his foundation, Richard Branson, Pierre Omidyar, Michael Dell) and European and Middle Eastern Royalty (Queen Rania of Jordan, Queen Maxima of Holland). For his part, microcredit's most famous proponent, Nobel Peace prize recipient (in 2006) Dr Muhammad Yunus, has been wildly celebrated in numerous hagiographic documentaries and he has logged many appearances on popular TV shows, such as the Oprah Winfrey Show (2006), The Daily Show with Jon Stewart (2006) and The Simpsons—see ‘Loan-a Lisa’, The Simpsons, episode 466, 2010.

³ David Roodman quoted in Vivian Walt, ‘Does Microfinancing Really Work? A New Book Says No’ Time, January 6th 2012. http://content.time.com/time/world/article/0,8599,2103831,00.html (last accessed on February 27th, 2015).

⁴ Consider just one quite astonishing recent example of such a turn-around. Microcredit was once universally seen as having huge potential to address the issue of gender empowerment and women in poverty (for example, see World Bank, 2001). However, in the latest high-profile progress report released by UN Women (2015), the UN body responsible for promoting gender equality and the empowerment of women, the role of microcredit was almost entirely dismissed on the basis that, ‘(E)xperience has shown that the lending practices of many microfinance institutions, particularly those that are ‘for-profit’ and poorly regulated, can in fact increase women's economic vulnerability and push households further into debt’ (page 209).

⁵ This form of disempowerment has been long known about. Writing in Victorian England, Karl Marx lamented the fact that those in extreme poverty—the lumpenproletariat—were generally so self-absorbed in ensuring their own immediate survival through petty activities that they could not be counted upon to play an important role in challenging capitalism (Marx & Engels, 2008). This strategic understanding of the importance of engaging the poor in tiny money-making activities accounts for why many Victorian reformers (notably Henry Mayhew, author of the path-breaking study London labour and the London poor published in 1851) got interested in the idea to provide the poor with small sums of money in order to engage them in tiny informal money-making activities.

⁶ De Soto's argument specifically pertained to the emerging anti-capitalist revolt in his native Peru, which he thought the peasants would not support if only they could be helped to focus instead on establishing and growing their own petty microenterprise as the way out of their extreme poverty and deprivation. His thesis gained enormous traction because it had much broader implications for the defence of capitalism everywhere.

⁷ Internationally well-known development economist, Hulme (2008, p. 6), wrote that in the 1980s when he came across Yunus in the field, he found Yunus to be ‘energetically promot(ing) microenterprise credit as a panacea for poverty reduction (something that intensely annoyed me, as it was so wrong)’.

⁸ One might also view Yunus's fundamental logical error here as akin to the error made by those who long argued that famines were caused by ‘a lack of food’ and that ‘more food availability’ would quickly remedy the problem, when in fact, as Sen (1981) famously showed, the core problem was actually the limited purchasing power of the poor that prevented them from buying the food that was often quite widely available in a famine region.

⁹ As Hulme (2008) recounts, even the Grameen Bank itself was force to convert over to for-profit respectability, which it did in 2001–2002 thanks to the so-called ‘Grameen II Project’.

¹⁰ There is much evidence on the efficiency of cooperatives in general (Novkovic & Webb, 2015) and also, more specifically, that financial cooperatives are a much better development engine than microcredit (Bateman, 2007). Interestingly, we might note also that much later on, when Yunus was under-fire from the Bangladesh government after 2010 for having allegedly mismanaged the Grameen Bank and having treated it as his personal fiefdom, he made the manifestly false claim that the Grameen Bank was all along a financial cooperative, and that it was owned and controlled by its poor women shareholders and he was simply their appointed employee. See Grameen Bank Interim Report (2013, pp. 46–58). http://www.mof.gov.bd/en/budget/gb/Grameen_Bank_Interim_Report.pdf (last accessed on March 2nd, 2015).

¹¹ One of the most egregious examples was uncovered in 2015 when it was revealed that in 2014 the CEO of the US-based MFI, FINCA, Rupert Scofield, quietly increased his annual salary from $US527,000 up to an amazing $US711,000, the resources for which were generated by charging FINCA's extremely poor clients in Africa and Latin America as much as 200% interest rates on their tiny microloans, http://990s.foundationcenter.org/990_pdf_archive/133/133240109/133240109_201312_990.pdf?_ga = 1.80746462.817836399.1427141764 (last accessed on April 20th, 2015).

¹² One should also note the suspicion that, for fear of offending their various funding bodies, even these latest confessions were still deliberately biased towards presenting the most positive possible assessment of microcredit impact. See Milford Bateman, ‘The art of pointless and misleading microcredit impact evaluations’ Governance across Borders, May 29th, 2013. http://governancexborders.com/2013/05/29/the-art-of-pointless-and-misleading-microcredit-impact-evaluations/ (last accessed on April 20th, 2015).

¹³ Even some of the mainstream international development agencies have been brave enough to concede this interpretation, notably the Inter-American Development Bank (2010).

¹⁴ See Hugh Sinclair. ‘What are some of the signs of a looming microfinance crisis?’, Microfinance Transparency, 8th February, 2014. http://blog.microfinancetransparency.com/what-are-some-of-the-signs-of-a-looming-microfinance-crisis/ (accessed on March 10th, 2015).

¹⁵ Although ‘poverty reduction’ was their founding rationale, virtually all of the highest profile US-based microcredit institutions (i.e. Grameen Foundation USA, FINCA, Opportunity, ACCION) have indicated little intention of amending their operations, still less closing themselves down, in the light of the pretty definitive evidence that microcredit has no impact on poverty. Instead, they clearly intend to carry on much as before, soliciting funds from the general public to underpin their activities in the field, debating at the highest level as to the importance of their operations, and providing a regular sprinkling of positive anecdotes (i.e. outliers) demonstrating ‘impact’ if their financial supporters begin to waver at any time.