Is Sustainable Local Development A Persuasive Alternative to Microfinance?

Wednesday, March 28, 2012

Milford Bateman is perhaps best known for his strident attacks on microfinance as an anti-poverty strategy, including his sometimes acrimonious debates with David Roodman, another microfinance analyst. Bateman claims that, by diverting resources away from more productive investments and indebting poor people with no significant return, the microfinance “fad” has been anti-developmental, benefiting lenders most.

If, like me, you have been an instinctive believer in microfinance for the past few years, Bateman’s critique is worrying. But even more worrying, perhaps, is the fact that Roodman, his apparent adversary on the subject, is also unconvinced. “We do not have credible academic evidence that microcredit on average lifts people out of poverty,” says Roodman. “We [also] do not have evidence that microfinance is systematically making people worse off.” Hardly reassuring.

No one, it seems, is able to back up the microfinance industry’s claims to be reducing poverty. In a systematic review of the evidence, Maren Duvendack, of the Overseas Development Institute, also gives what can only be described as a thumbs-down to the multi-billion dollar industry, concluding: “[There is] no clear evidence that microfinance has any positive or negative impacts.”

But while much has been written on the rights and wrongs of microfinance, there has been less analysis of what might replace it and how funds could be better used to help poor communities move out of poverty. This is the question on which Bateman has developed a position that is compelling, well-evidenced and firmly part of the heterodox economic tradition populated by development economist Alice Amsden,who sadly died last week just as her ideas are regaining ground.

Speaking at a conference on local development last week in Medellin, Bateman argued that where the local private sector (that is, small- and medium-sized enterprise) has developed successfully in the past, local governments have played a strong and decisive hand. This is in contrast to the neo-liberal insistence that the state should have little to do with local development. Europe’s postwar recovery, according to Bateman, was managed under broadly Keynesian macro-principles and a tolerance for planning. From northern Italy to the Basque country, from west Germany to Scandinavia, local and regional governments were strongly interventionist in support of their small and medium enterprises (SMEs), and the upgrading of technological capacities was facilitated by access to affordable finance.

Source: The Guardian (link opens in a new window)

financial inclusion, microfinance, poverty alleviation