Microcredit in advanced economies as a "third way”: a theoretical reflection

Canale, Rosaria Rita (2010): Microcredit in advanced economies as a "third way”: a theoretical reflection.

Abstract

Microcredit has been growing over time and has been gaining an ever increasing position in the budget of monetary and financial institutions in developing countries. The aim of the paper is to investigate the role it can have in advanced economies and whether it might represent a "third way" as an alternative to the traditional conflict between the state and the market. However, while in third world countries microfinance experiences have been ample and finding great success, in developed countries it reaches only a small percentage of the population. This reduced dimension of the microfinance phenomenon depends on two facts: 1) the difficulty of starting income-generating activities with microloans; and 2) the alternative no risk remuneration obtainable in the market (reserve wage). These two conditions are a direct function of the general state of the wealth of the economy. In fact, while in cases of underdevelopment "finance for the poor" represents an instrument to exploit unutilised resources, in advanced economies it is mainly an instrument of solidarity, because it goes to fill the gap left by the absence of social safety nets and the reduction of the welfare state. Therefore microcredit in advanced economies might represent a “third way” as general non-profit organisation instruments do, and has to be investigated within this literature, rather than the framework of financial exclusion.

• Item Type: MPRA Paper
• Language: English
• Keywords: microfinance, advanced economies, "third way"
• Subjects: D - Microeconomics > D0 - General > D01 - Microeconomic Behavior: Underlying Principles; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

References

Adams J. E, Raymond F. (2008) Did Yunus Deserve the Nobel Peace Prize: Microfinance or Macrofarce? Journal of Economic Issues, 2(XLII).pp.435-443.

Akerlof G. (1970) The Market for Lemons: Quality Uncertainty and the Market Mechanism, Quarterly Journal of Economics, 1984.

Arestis P., Caner A. (2008) Capital Account Liberalization and Poverty: How Close is the Link? Working Paper No: 08 -11 TOBB University of Economics and Technology Department of Economics.

Armendáriz de Aghion B., Morduch J. (2004), “Microfinance. Where do we Stand?” In G. Goodhart (ed) Financial Development and Economic Growth: Explaining the Links, Basingstoke: Macmillan.135-148.

Borgomeo C. & co (2008) III Rapporto sul Microcredito in Italia, Rubbettino Editore.

Demirguc-Kunt A., Levine R. (2009) Finance and Inequality: Theory and Evidence NBER WP 15275 August.

European Commission (2007) A European Initiative for the Development of Micro-credit in Support of Growth and Employment COM(2007) 708 final/2.

Gonzalez A., Rosenberg R. (2006) The State of Microfinance – Outreach, Profitability, and Poverty. Findings from a Database of 2300 Microfinance Institutions, SSRN WP n. 1400253, May.

Hishigsuren G. (2006) Transformation of Micro-finance Operations from NGO to Regulated MFI, Microcredit Campaign Commissioned Papers. Available via: www.microcreditsummit.org/commissioned_papers.

Krugman P. (1991) Increasing Returns and Economic Geography, Journal of Political Economy, 99(3), 483-99.

Lanzi D. (2008), Microfinance at a Crossroads, Economic Notes, 37, (2-2008), 203–210.

Marconi R., Mosley P. (2006) Bolivia during the Global Crisis 1998–2004: Towards a ‘Macroeconomics of Microfinance’, Journal of International Development, 18, 237–261.

Microcredit summit campaign (2009) Annual Report 2009. Available via: www.microcreditsummit.org/uploads/socrs/SOCR2009_English.pdf. Morduch J., Schreiner M. (2001) “Replicating Microfinance in the United States: Opportunities and Challenges”, In Jim Carr. Zhong Yi Tong (ed) Replicating Microfinance in the United States, Washington, D.C.: Fannie Mae Foundation.

Navajas S., Conning J., Gonzalez-Vega C. (2003) Lending Technologies, Competition and Consolidation in the Market For Microfinance in Bolivia, Journal of International Development, 15, 747–770.

Stiglitz J. (2009) The Current Economic Crisis and Lessons for Economic Theory, Eastern Economic Journal, 35, 281–296.

Stiglitz J.E., Weiss A. (1981) “Credit Rationing in Markets with Imperfect Information”, American Economic Review, 71, 393-410

World Bank (2001) World Development Report 2000/2001, Attacking Poverty, Oxford University Press.Oxford

Yunus M. (2003) Bankers to the poor. Microlending and the battle against poverty, (Public Affairs)