The illusion of poverty reduction

Published on STWR, by Milford Bateman, Oct. 11, 2010.

With poverty rising rapidly in many developing and transition countries on account of the global financial crisis, the need for effective policies to address this key issue is of increasing importance. One development policy long hailed as important in this context is ‘microfinance’. As originally conceived, microfinance (or microcredit as it is also known) is the provision of tiny loans to poor people who establish or expand a simple income-generating activity, thereby supposedly facilitating their escape from poverty … //

… A neoliberal ideology:  

So if microfinance is so counter-productive, why is it still being pushed? The answer here is not to be found in the economics, but in the politics and ideology of microfinance. Microfinance supports individual entrepreneurship, and in many ways it deliberately positions such activities as the sole legitimate way for the poor to try to escape their poverty. To the extent that the poor can be brought around to agreeing with this deeply neoliberal worldview, the more likely it is that they will willingly abandon the radical pro-poor policies (progressive taxation, wealth redistribution, a ‘developmental state’) that can most meaningfully resolve their poverty plight but that jeopardise established business and political interests. Microfinance is simply one more strand in the ongoing attempt by the most powerful western economies to impose neoliberal policies around the globe.

No one denies that microfinance has some benefit for the poor. As in any lottery or game of chance, a few in poverty do manage to establish microenterprises that produce a decent living. The poor also value microfinance in terms of consumption smoothing. However, as I have tried to show, these isolated and often temporary positives are swamped by the largely overlooked negatives. The international development community is now faced with the reality that, overall, microfinance has been a development policy blunder of quite historic proportions. The longer it fails to register this, the worse it will be for the poor everywhere. (full long text).

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