Microcredit has been a disaster for the poorest in South Africa | Global Development Professionals Network | The Guardian: "After apartheid ended in South Africa in 1994, the international development community quickly arrived with plans to promote the microcredit model. Proclaiming that it would rapidly bring new jobs, incomes, empowerment and dignity to the poorest black communities and townships, expectations of rapid progress ran high.
However, the microcredit medicine applied to post-apartheid South Africa has turned out to be a deadly one. It is now increasingly clear that the much-lauded market-driven microcredit model has inflicted untold damage on the South African economy and society. Concerned investors are rapidly leaving the bloated microcredit sector, with many users arguing that it is on the verge of a self-orchestrated collapse.
The microcredit-induced problems that emerged in South Africa are two-fold. First, microcredit per se is actually an "anti-developmental" intervention. For one thing, it exists on paper to support the smallest income-generating activities, but in practice is increasingly all about supporting consumption spending. In South Africa, the microcredit movement has created an incredibly risky and expensive way to support the immediate consumption needs of the very poorest.
With few poor individuals possessing a secure income stream that might ensure full repayment of a microloan – unemployment is now higher than it was under apartheid – many of the poorest individuals have been forced to repay their microloan by selling off their household assets, borrowing from friends and family, as well as simply taking out new microloans to repay old ones. For far too many now "financially included" individuals in South Africa, using microcredit to support current spending has been a disastrous and irreversible pathway into chronic poverty.
Going further, of the very small percentage of microcredit that actually does go into supporting income-generating microenterprises (as per the original model), the fact remains that the business activities that emerge are simply not the drivers of sustainable development and poverty reduction. The rafts of new street traders, barrow boys, spaza shops and the like have generated very little, if any, positive impact in South Africa's poorest local communities. Centrally, late-apartheid South Africa already possessed a very large informal economy in the black townships, one that was composed of exactly such simple low-capitalised no-growth activities."
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However, the microcredit medicine applied to post-apartheid South Africa has turned out to be a deadly one. It is now increasingly clear that the much-lauded market-driven microcredit model has inflicted untold damage on the South African economy and society. Concerned investors are rapidly leaving the bloated microcredit sector, with many users arguing that it is on the verge of a self-orchestrated collapse.
The microcredit-induced problems that emerged in South Africa are two-fold. First, microcredit per se is actually an "anti-developmental" intervention. For one thing, it exists on paper to support the smallest income-generating activities, but in practice is increasingly all about supporting consumption spending. In South Africa, the microcredit movement has created an incredibly risky and expensive way to support the immediate consumption needs of the very poorest.
With few poor individuals possessing a secure income stream that might ensure full repayment of a microloan – unemployment is now higher than it was under apartheid – many of the poorest individuals have been forced to repay their microloan by selling off their household assets, borrowing from friends and family, as well as simply taking out new microloans to repay old ones. For far too many now "financially included" individuals in South Africa, using microcredit to support current spending has been a disastrous and irreversible pathway into chronic poverty.
Going further, of the very small percentage of microcredit that actually does go into supporting income-generating microenterprises (as per the original model), the fact remains that the business activities that emerge are simply not the drivers of sustainable development and poverty reduction. The rafts of new street traders, barrow boys, spaza shops and the like have generated very little, if any, positive impact in South Africa's poorest local communities. Centrally, late-apartheid South Africa already possessed a very large informal economy in the black townships, one that was composed of exactly such simple low-capitalised no-growth activities."
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