Excerpt. © Reprinted by permission. All rights reserved.Why Doesn't Microfinance Work?The Destructive Rise of Local NeoliberalismBy Milford Bateman Zed Books LtdCopyright © 2010 Milford BatemanAll rights reserved.ISBN: 978-1-84813-331-0ContentsPreface, vi,Acronyms, x,1 Introduction, 1,2 The rise of microfinance, 6,3 Microfinance myths and realities, 28,4 Microfinance as poverty trap, 60,5 Commercialization: the death of micro-finance, 112,6 The politics of microfinance, 154,7 Alternatives to conventional microfinance, 166,8 Conclusion: the need for a new beginning, 201,Notes, 213,Bibliography, 233,Index, 253,CHAPTER 1IntroductionThis book is about one component of the global financial sector ? microfinance ? that in just thirty years has risen to become one of the most important policy and programme interventions in the international development community. As originally conceived, microfinance is the provision of tiny loans to poor individuals who establish or expand a simple income-generating activity, thereby supposedly facilitating their eventual escape from poverty. Its advocates claim that microfinance has been critical to the fate of the poor in many developing countries, creating jobs and raising incomes in the poorest communities, helping to empower the poor (especially women), and generally kick-starting a 'bottom-up' economic and social development process. The person most associated with the 'discovery' of microfinance in the 1970s is the Bangladeshi economist and 2006 Nobel Peace Prize co-recipient, Dr Muhammad Yunus. With his vision of rapid and affordable poverty reduction being achieved through microfinance, Yunus was able to convince virtually everyone in the international development community to support his efforts. Indeed, the next generation, he famously said in the 1980s, would be able to understand the concept of poverty only after having visited a 'poverty museum'. Here, surely, was the poverty reduction concept that all developing countries had been waiting for.The central argument that I will develop in this book, however, is that microfinance is largely antagonistic to sustainable economic and social development, and so also to sustainable poverty reduction. Put simply, microfinance does not work. I fully accept that there are some minor benefits to be derived from the widespread provision of microfinance to the poor. An intervention that puts a little extra cash into the hands of the poor in any community ? and especially if that cash is brought in from outside the local community in question ? could hardly do otherwise. But I argue that these benefits are very minimal indeed, and anyway wholly insignificant when set alongside the huge longer-term downsides and opportunity costs inherent in the operation of the microfinance model. To focus upon these few minor shorter-term benefits is to deliberately focus on the few trees left standing after having helped the entire forest to burn down. In truth, once we go beyond the fabulous 'feel-good' PR and marketing effort undertaken on behalf of the microfinance model, no more so than by Muhammad Yunus himself, we find a completely different reality. Sustainable local economic development trajectories are actually undermined and blocked. Local communities are structurally weakened and destroyed. Important reserves of solidarity, mutuality and cooperation are trashed thanks to the internecine competition between desperate individuals 'poverty-pushed' into establishing the very simplest of microenterprises. Human dignity and self-respect are lost as the poor in developing countries are increasingly forced to accept their permanent engagement with the most primitive, illegal, dangerous and demeaning business activities imaginable. Overall, those developing countries awash with microfinance ? and the prime example, of course, is Bangladesh itself ? are increasingly being left behind by other developing countries, those that have prov