Abstract
Microcredit is a prominent sector in the field of sustainable development finance. This article addresses the lessons learned in its rise and fall over thirty years. It examines the conceptual barriers as a result of its commercialisation, driven by the underlying neoliberal paradigm: the asymmetric debt relationship, the use of an arbitrary poverty line for the assessment of its performance, the absence of the inequality perspective, the unsubstantial belief in a ‘natural’ market equilibrium. A systemic failure of market forces lies beyond that paradigm, hence an alternative post Keynesian theory is illustrated by Mader’s application of Minsky’s financial instability hypothesis to the collapse of the regional microcredit market in India. It follows a brief overview of the feeble response of the microfinance industry to the distortions in the microcredit markets. In the final part, two alternative approaches to sustainable development finance are outlined, the universal basic income and the “Jubilee” type debt cancellation challenging usury and systemic overindebtedness. A thorough understanding of the lessons learned in microcredit opens new windows of opportunities to achieve a meaningful theory of change in sustainable development finance.
“He that has lost his credit is dead to the world.”
(German and English Proverb)
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Notes
- 1.
“‘Sustainable Development’ is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” (Report of the World Commission on Environment and Development: Our Common Future 1987: 41).
- 2.
I use the term ‘neoliberal’, often lacking precise meaning, in the way Ph. Mirowski defines the ‘neoliberal thought collective’ as the group of economists who developed the neoliberal core agenda in the Mont Pèlerin Society since 1947 (Mirowsky 2014).
- 3.
Microfinance encompasses diverse microfinancial services to the poor, f.e. microcredit, microsaving, microinsurance, microleasing. Although the term is used synonymously with microcredit, the latter in its strict sense refers to the provision of credit only.
- 4.
A claim repeatedly challenged by Acciòn, a microfinance institution which provided its first microloans in Brazil in 1973.
- 5.
see also Bateman and Chang (2012: 15).
- 6.
The SKS Microfinance case shall be outlined in more detail in the chapter “India’s Minsky Moment”.
- 7.
Say’s Law assumes, in the classical tradition of economics, that in the absence of state interventions markets clear and the economy is close to full employment. Keynes’ General Theory has been the most prominent falsification of Say’s Law.
- 8.
Based on information submitted by >700 MFIs; BNP Paribas estimates a total volume of US $ 114 bill. and 139 mill. clients (BNP 2018: 2).
- 9.
A frequently used term coined by C.K. Prahalad in The Fortune at the Bottom of the Pyramid (Prahalad 2005).
- 10.
The Ponzi scheme is named after Charles Ponzi who in Boston 1920 conceived a ‘snowball’ roll-over borrowing system with increasingly ruinous speed and volume.
- 11.
BMZ: German Federal Ministry for Economic Cooperation and Development; KfW: Kreditanstalt für Wiederaufbau, Germany’s state-owned Development Bank.
- 12.
see next chapter.
- 13.
Since 2017 the World Bank routinely calculates and reports multiple international poverty lines.
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Heller, P.W. (2021). The Lessons of Microcredit. In: Wendt, K. (eds) Theories of Change. Sustainable Finance. Springer, Cham. https://doi.org/10.1007/978-3-030-52275-9_11
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