Undermining Sustainable Local Economic and Social Development with Microfinance: Evidence from Croatia

This paper takes a survey of the microfinance sector in Croatia and critically reevaluates microfinance and questions its potential to alleviate poverty and deliver bottom-up development. It focuses on Croatia, which has seen over 10 years of microfinance activity. Suggesting that microfinance is perhaps one of those ideas that rise quickly to prominence only to fall from favor subsequently, the paper gives the following reasons:

• Widening gulf between the optimistic picture that microfinance presents in theory and reported ground reality;
• Obvious absence of new wave microfinance models in countries that have effected poverty reduction and sustainable development successfully since 1945;
• IFIs tend to promote inefficient models based on their ideological serviceability, and the new wave microfinance model is perfectly in tune with current dominant neoliberal ideology.

The study found that despite being professionally managed, the MFI sector in Croatia displayed:

• Very little achievement in terms of underpinning sustainable local economic and social development trajectories;
• Negative impact in terms of supporting the wrong types of microenterprises;
• Expansion by mobilizing local savings, channeling valuable local resources into suboptimal savings and investment cycles.