Thirty years ago, the international development community was abuzz with excitement. The reason was that the perfect solution to poverty in developing countries appeared to have been found: microcredit. As originally conceived, microcredit is the provision of tiny micro-loans to the poor to allow them to establish a range of very simple income-generating activities, thereby supposedly helping facilitate an escape from poverty. It is a concept most associated with the US educated Bangladeshi economist and 2006 Nobel Peace Prize winner, Dr. Muhammad Yunus, who quickly became the public face of the global microcredit industry. Building upon existing microcredit models he found in Bangladesh after returning from a period of PhD study and teaching in the USA, Yunus was able to attract significant funding from the international development community to operationalize his own plans for a ‘bank for the poor’, plans that famously turned into the now iconic Grameen Bank. Positioned as the role model local financial institution for poverty reduction, the Grameen Bank was soon joined by ‘Grameen clones’ in many other developing countries.

A major boost was then forthcoming in the 1990s thanks to the commercialization of the microcredit industry, which saw for-profit microcredit institutions soon pumping out huge volumes of microcredit. By the mid-2000s, the microcredit model was the international development community’s most generously funded and supposedly most effective anti-poverty intervention. Microcredit was soon wildly popular among the ordinary public, too, not least thanks to a long list of celebrities from all walks of life offering their support. Starting in 2007, however, the microcredit model began to come under a sustained attack from a variety of directions. Even longtime supporters now awkwardly accepted that microcredit on average had had no positive impact on poverty. Moreover, the level of profiteering and greed that emerged in the microcredit industry as it was extensively commercialized and deregulated stunned even hardline microcredit supporters, not least Muhammad Yunus.

More….