The last 30 years or so has seen the commercial or ‘new wave’ microfinance model rise to dominate the poverty reduction agenda in both developing and transition countries alike. Initially inspired by the Grameen Bank model that emerged in Bangladesh in the 1970s, but later refined to incorporate more fully standard neoliberal commercialization imperatives, the microfinance model is now the most visible poverty reduction strategy around. Nevertheless, even its strongest supporters agree that it still remains moot as to whether it actually possesses the required ‘transformative capacity’ to secure permanent poverty reduction associated with genuinely sustainable national, regional and local economic and social development. This article looks at a local financial systems model arising in Western European practice that, in contrast to the commercial microfinance model, is unequivocally associated with sustainable economic and social development and growth, and thus also sustainable poverty reduction. The author argues that this ‘integrated cooperative financial systems model’ should have had, and should still have today, enormous implications for developing and transition countries (still) seeking to construct local financial institutions that are capable of establishing genuinely equitable and sustainable local economic and social development trajectories.
'New wave' microfinance institutions in south-east Europe: towards a more realistic assessment of impact
The 'new wave'microfinance institution (MFI) approach, which encourages MFIs to become commercial and strive for financial self-sufficiency, constitutes an increasingly important local strand of the neo-liberal political project that has guided policy interventions throughout developing countries since the early 1980s and in the transition economies since 1990. It has attracted substantial support and funding in the context of the reconstruction of south-east Europe in the wake of the Yugoslav civil war and, more recently, in the aftermath of the Kosovo conflict of 1999. This article argues that the high-interest, short-term loans on offer have encouraged economic development based on trading and have contributed to deindustrialization. Moreover, the withdrawal of MFIs from remote communities to towns where better returns are possible has led to disillusion, a decline in regional solidarity and a loss of social capital.
During the 1990s networks of Business Support Centres (BSCs) were promoted in the transition economies of eastern Europe, aimed at supporting business start-ups and microenterprises. The funding came from western donor agencies, who were convinced that support services within local government were ineffective, and instead funded private-sector BSCs. This article argues that an essentially neo-liberal ideology underpinned the BSCs' design, before going on to point out some of the main drawbacks and opportunity costs which followed from this approach. Now that funding is being withdrawn, the BSCs are not being adopted by local government, and they are obliged to fund themselves with consultancies from large businesses. It is argued that the 'tiger economies' provide examples of successful state involvement in SME development, a model which was ignored, but would have been more appropriate in Central and Eastern Europe.