The Microfinance Illusion

38 Pages Posted: 27 Jan 2014

See all articles by Milford Bateman

Milford Bateman

Juraj Dobrila University of Pula (UNIPU); St Marys University, Halifax

Ha-Joon Chang

University of Cambridge - Faculty of Economics and Politics

Date Written: May 25, 2009


In both developing and transition economies, microfinance has increasingly been positioned as one of the most important poverty reduction and local economic and social development policies. Its appeal is based on the widespread assumption that simply ‘reaching the poor’ with microcredit will automatically establish a sustainable economic and social development trajectory animated by the poor themselves. We reject this view. We argue that while the microfinance model may well generate some positive short run outcomes for a lucky few of the ‘entrepreneurial poor’, the longer run aggregate development outcome very much remains moot. Microfinance may ultimately constitute a new and very powerful institutional barrier to sustainable local economic and social development, and thus also to sustainable poverty reduction. We suggest that the current drive to establish the central role of microfinance in development policy cannot be divorced from its supreme serviceability to the neoliberal/globalisation agenda.

Keywords: microfinance, poverty reduction, Bangladesh, Bosnia, neoliberalism, globlisation

Suggested Citation

Bateman, Milford and Chang, Ha-Joon, The Microfinance Illusion (May 25, 2009). Available at SSRN: or

Milford Bateman (Contact Author)

Juraj Dobrila University of Pula (UNIPU) ( email )

Zagrebačka 30
Pula, 52100

St Marys University, Halifax ( email )

Halifax, nova scotia

Ha-Joon Chang

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom
+44 1223 335389 (Phone)
+44 1223 335475 (Fax)

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