Getaneh
Good post and glad I came across it just now. You were right to point out that there is way too much waffle written about the power of microcredit, and too many attempts to hide the problems of microcredit by attempting to bury the concept within the silly financial inclusion trope.
Microcredit analysts and academics supporters all refuse to confront the issue of the longer run opportunity cost of microcredit because it represents a negative impact, so better not go there if you want to come up with the required positive result. The (in)famous 6 RCTs all did this to varying degrees, of course, as my blog posting you referred to pointed out. Carefully ignoring a whole load of the most important downsides in order to get to the very weakly 'microcredit is sort of a little positive' result they came to, which I guess was a contractual requirement insisted upon by those that funded these RCTs, is what happens a lot these days, unfortunately.
In terms of Odell's work in 2015 (and in 2010) undertaken on behalf of the Grameen Foundation USA it is, sadly, nothing more than a veritable masterpiece in this unethical Soviet-style technique. So she purports to neutrally summarise the research on the impact of microcredit, and centrally claims that there is no evidence of any negative impact arising from microcredit. But by refusing to engage with, or even cite one single article, from the now very extensive literature contending just such an impact, the general reader is left in some ignorance and confusion, as presumably intended, as to exactly what has been claimed by which critics and on what basis. Phew, we can carry on believin' folks........
Interestingly, this 'looking the other way' approach to the downsides to microcredit continues in spite of much interesting work of late in mainstream neoclassical economics confirming, yet again (see earlier excellent work by people like Ross Levine), that the depth and structure of the financial intermediation system is quite paramount to growth, development and long-term poverty reduction, and that if your chosen financial intermediation structure progressively supports the least productive projects - say, for arguments sake, informal micro enterprises and self-employment ventures - you essentially destroy the foundations required for sustainable and equitable local economic development. I just finished reading some very interesting papers touching on this released by - of all people - the Bank for International Settlements in Basel and they all have profoundly negative implications for the microcredit/financial inclusion project. One by Stephen Cecchetti and Enisse Kharroubi in 2015 is very interesting, arguing that a financial system that allocates scarce capital into unproductive ventures - they talk about construction, but the concept extends further - this will seriously undermine the economy (its here to download)
Another one by a group of authors out in late 2015 argues that the evidence shows that financial crises destroy even more of the economic structure - think microcredit crises here, and you get the picture. This article is here;
These papers, and others by the same team of authors, all highlight how long-term growth and poverty reduction is brought about by consistent patient investment in the most productive enterprises, and NOT by increasingly investing in the least productive enterprises (or, even worse, consumption spending). They use data from the developed economies, sure. But their argument also provides us with an interesting explanatory framework that we can use to begin to understand why we find that when microcredit has reached critical mass - Bangladesh, Bolivia, Bosnia, Cambodia, Peru, South Africa, Nicaragua, Morocco, Andhra Pradesh in India etc - it has actually destroyed the local economic fabric far more than it has improved it, which is why no-one can find any genuine data to confirm microcredit has had an overall positive impact. In spite of some positive impacts, therefore, and as I am hearing a lot in the course of my current assignment on local finance for one of the international development agencies, microcredit can be most accurately summed up as the programmed but unintentional destruction of the local economic and social base.
Milford Bateman
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Posted by: milford bateman <milfordbateman@yahoo.com>
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