The Lessons of Microcredit

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.