How Exclusive Is Financial Inclusion?

Interview with Prof. Milford Bateman on microcredit, microfinance, and other economic development myths

Dar es Salaam, Tanzania. December, 1965. The view shows a shop on the Uhuru-Street. The exact date of the photograph is

Picture: Imago/Itar-Tass

Read full interview at Rosa Luxemburg Foundation 

The interview is part of the Project "The Future of Money in Africa"

Milford Bateman is a freelance consultant on local economic development and a Visiting Professor of Economics at the Juraj Dobrila University of Pula. He is also Adjunct Professor of Development Studies at St Mary’s University in Halifax, Associate Researcher at the Fluminense Federal University (UFF) in Rio de Janeiro, as well as Honorary Research Associate at the Royal Holloway College of the University of London.

The Promise of Financial Inclusion

The FinTech industry and some developmental advisors claim that financial inclusion uplifts the poor. Similar hopes were initially raised about microfinance. What is your perspective on financial inclusion as a means to address poverty?

It is a rather bizarre story. Beginning as simply microcredit, it soon evolved to include other financial services — savings, insurance, leasing, and so on — and now referred to as microfinance. The leading advocate and 2006 Nobel Peace Prize winner, Muhammad Yunus, repeatedly announced that microfinance would eradicate global poverty in a generation.

Microfinance was first popularized in the 1980s in Bangladesh and Bolivia. By the late 2000s, however, the sour reality began to kick in: microfinance didn’t actually work. In spite of hundreds of billions of dollars of microloans dispersed to the global poor, it was not possible to detect any meaningful net positive impact on global poverty.

The conventional wisdom began to acknowledge that it had indeed failed to transform the Global South, but it had provided some benefit to some of the global poor. This, for example, was the view of the 2019 Nobel Economics Prize winners and one-time leading supporters of the microfinance model, Abhijit Banerjee and Esther Duflo. They were then forced to change their minds and admit that the correct interpretation of the evidence was that microfinance had had little to no real positive impact.