By John D Conroy
Microfinance Monitor, June 12, 2010: Negative outcomes of the global economic crisis are evident in many aspects of economic life, especially in disruptions associated with the global reach of financial markets. This reach has been extended, inter alia, by ‘financialisation’.
It is not far-fetched to compare sub-prime lending and contemporary financialised microcredit. Much sub-prime credit was foreign-funded, as is a growing proportion of micro-lending. Both were stimulated by financialisation. Both were accelerated by well-intentioned governments (the Community Re-Investment Act in the US, ‘Northern’ government ODA and state ‘apex’ institutions in developing countries).
The US sub-prime crisis has had destructive consequences for other financial systems. Foreign investment in ‘pure’ micro-lending may prove to have negative consequences for ‘Southern’ financial systems, especially at the grassroots level.
Since Grameen Bank first came to attention, thinking about financial services for the poor has emphasised, first, micro-lending, then ‘microfinance’, and now ‘financial inclusion’. However, pure-lending microcredit operations have continued to grow in the marketplace as the vulgar face of microfinance, while the proportion of for-profit investors has grown rapidly.
Most pure-lending investors misappropriate the ‘microfinance’ label, although by failing to offer products other than credit they reject a central insight of the microfinance industry.
Some consequences of financialisation in the microcredit ‘industry’, referring to the many entities which confine themselves entirely or primarily to lending operations require our attention. Observers may question whether such ‘pure-lending’ microcredit in developing economies will provide an uncomfortable analogy with ‘sub-prime’ home mortgage lending in the US. To read full article, click here.
