The Limits of Micro Credit as a Rural Development Intervention

This dissertation explores the limits of microcredit as a rural development intervention. The paper:

• Introduces the topic of rural microfinance and explores the issues of capital markets and the poor;
• Examines the impact and the potential impact of informal money-lenders and innovative microfinance institutions (MFIs) on rural development;
• Looks at the following conditions which limit the effectiveness of MFIs as development interventions:
  • When there are non-viable enterprises/entrepreneurs,
  • When development needs to target the 'poorest of the poor',
  • When poverty is the overt result of political processes.

The main argument of the paper is as follows:

• Neo-liberal theorists and innovative 'Development Finance Institutions' (DFIs) have vigorously promoted microcredit as a rural development intervention;
• However, credit is only one ingredient in the mix of factors necessary for a successful enterprise;
• Micro-enterprises also need access to infrastructure and information, which may be absent in rural societies;
• Also, microcredit often does not reach the 'poorest of the poor', who are the targets of development interventions;
• Microcredit schemes treat the symptoms and not the causes of poverty, ignoring the complex matrix of power relations that cause poverty.

The dissertation concludes that the lack of recognition of the limitations of microcredit schemes may have the following consequences:

• The unsuccessful and inappropriate use of microcredit;
• The promotion of microcredit as a development intervention, irrespective of the local and specific causes of rural poverty.