Transcript
A. Intro
Microfinance was once seen as a revolutionary tool against poverty. The concept
was simple: if you provide small loans, typically under $400, to women in the Global
South, you can help them start small businesses. Perhaps these tiny loans will enable
people to create their own businesses, such as food stalls, livestock farms, or informal
convenience stores.
Borrowers, in this way, were expected to lift themselves and their families out of
poverty with only discipline and access to credit.
Bloomberg refers to microfinance as “the business of giving very small loans to
poor people with little or no collateral, then collecting the debt plus interest through
frequent repayments.” The practice was praised and marketed as empowerment: because
it was efficient, it was deemed “scalable” and low-cost. This was the best neoliberalism
had to offer: alleviating poverty with markets.
By the early 2000s, microfinance had gained global support. In 2005, the UN
declared it the “Year of Microcredit.” The following year, Grameen Bank founder
Muhammad Yunus won the Nobel Peace Prize for his pioneering work. Major
institutions, like the World Bank, began pouring billions into microfinance programs.
But two decades later, the results have fallen short of expectations. Why did a
solution that promised to reduce poverty struggle to deliver? Why was the responsibility
for fixing poverty placed so squarely on poor women, and what does this reveal about the
global development agenda? This video essay seeks to identify where microfinance went
wrong, who it ultimately served, and why a celebrated model became so divisive.
B. Background
The modern microfinance movement began in Bangladesh almost 50 years ago,
when economist Muhammad Yunus lent $27 to 42 women in the village of Jobra. These
women had been borrowing daily at exorbitant rates from local moneylenders just to buy
bamboo for their crafts. When they repaid Yunus’ small loan in full, it proved a radical
idea: tiny amounts of capital could break cycles of predatory debt.
This experiment became the foundation for Grameen Bank, the first microfinance
bank. Its innovation was group lending, where borrowers formed “loan circles” that
collectively guaranteed repayment. In other words, it used social ties as collateral.
The model spread globally, touting impressively low default rates. Its focus on
women borrowers became a hallmark, replicated by NGOs, development banks, and
microfinance institutions worldwide.
But as the model scaled, it also changed. What began as a community-based effort
to expand credit access gradually shifted toward commercial lending, investor-driven
expansion, and stricter repayment schedules. In some areas, borrowers were pressured to
take loans larger than they could manage and were then harassed, sometimes publicly,
when they fell behind. Reports from places like India describe women being coerced into
repayment through humiliation, threats, and, in the most extreme cases, facing such
pressure that it resulted in suicide.
Even Yunus grew disappointed. “I felt terrible that microcredit took this wrong
turn,” he later admitted. “Many went in the inevitable direction of loan-sharking.”
C. Mexico
The specific case study I want to focus on is Mexico’s Compartamos Banco
because it perfectly illustrates the commercial turn microfinance took.
Founded 30 years ago as a nonprofit by Catholic relief workers, Compartamos became a
commercial bank in 2006. Just one year later, it held an IPO that valued the company at
$1.5 billion, raising millions for early investors. Compartamos went on to become the
largest microfinance provider in Latin America. Its flagship product offers group loans
exclusively to women.
By 2022, the bank served over 2 million clients. Loan amounts ranged from $125
to $2,250, with first-time borrowers typically qualifying for the lower end. The
annualized interest rate on these loans was often more than 110%.
Unlike traditional lenders, Compartamos does not require borrowers to submit business
plans or verify income-generating activity. Instead, it relies on a group lending model in
which peer accountability replaces formal collateral or credit checks. As long as group
members guarantee one another’s repayments, loan officers are not required to assess
individual risk.
To evaluate the outcomes of this model, researchers conducted a randomized
controlled trial between 2008 and 2012. The study tracked 16,560 women across three
northern cities, comparing outcomes in neighborhoods where Compartamos expanded to
those where it had not.
The results were mixed. Business revenues rose by 27%, which may appear
promising until you consider that expenses climbed by 36%. There was no evidence of
increased profits, household income, or sustained business growth.
The study also found no consistent improvements in women’s decision-making
power. These were not results of transformation.
D. Feminist and Anticolonial Critiques
Why is that? Well, it is important to note that microcredit did not originate in a
vacuum. Many of the early lending groups formed not as banking products but as mutual
support networks, where women came together to save collectively, share responsibility,
and help each other through emergencies. These informal thrift groups were built on trust
and flexibility.
But as financial institutions recognized their organizational potential, they were
absorbed into formal microfinance systems. Rather than supporting these groups on their
own terms, the institutions repurposed them to fit lending agendas, using their structure to
facilitate credit disbursement and repayment. Over time, the focus shifted from meeting
community needs to meeting lending targets. What began as a grassroots response to
marginalization was gradually reengineered into a top-down financial product.
As microfinance expanded, so did its alignment with global development agendas.
From the 1990s onward, international institutions, governments, and donors increasingly
promoted market-based solutions to poverty.
Grants and aid gave way to loans and entrepreneurship. Women, especially those from
low-income households, were seen as strategic borrowers: more likely to repay, more
likely to use funds for household needs, and more embedded in social networks that
could ensure accountability. These assumptions were rarely questioned, even though they
were rooted in essentialist ideas about women’s roles and responsibilities. While women
were framed as natural entrepreneurs, the contexts they were operating in, such as limited
access to resources, unpaid labor burdens, and restricted decision-making power,
remained largely unchanged.
This shift in strategy allowed development institutions to frame microcredit as
empowerment while avoiding deeper engagement with the structural causes of poverty.
Credit became a stand-in for rights, and repayment became a proxy for success. But this
framing overlooked the fact that many women took out loans not to grow businesses, but
to manage daily survival—to pay for food, healthcare, or children’s education. The
pressure to repay often meant cutting back on essentials or taking out additional loans,
deepening cycles of debt.
In this system, empowerment was reduced to access rather than control. A woman
may receive a loan, but that does not guarantee she has a say over how it is used or that it
improves her long-term well-being.
There is also the question of labor. Microfinance assumes that time and effort can
simply be redirected toward small business activities. But for many women, this work is
layered on top of existing unpaid responsibilities such as childcare, elder care, or
household management.
Rather than lightening burdens, loans often stretch women thinner. And because
repayment is the priority, there is little room to take risks or experiment.
Finally, there is the issue of depoliticization. The language of entrepreneurship
and self-help tends to obscure the broader political and economic conditions that produce
poverty. Microcredit shifts responsibility onto individual women while letting states,
markets, and institutions off the hook. Programs once grounded in collective
empowerment are now more focused on metrics and repayment rates. Participation may
offer visibility, but not necessarily voice—especially not in a rights-based sense.
If microfinance is to support real transformation, it cannot be reduced to access or
participation. It must engage with the structural dimensions of poverty, which include
patriarchy, racism, and class hierarchies, and recognize the unpaid and undervalued labor
that women already perform. Credit may play a role, but it cannot replace employment,
healthcare, social protection, or collective power.
E. Shift and Alternatives
These critiques, paired with mounting empirical evidence, prompted change. In
2021, the Government Accountability Office found that while microcredit programs
sometimes showed short-term benefits, they offered “little evidence of lasting benefits”
for poor households or women’s empowerment over time. The studies reviewed by the
agency included both performance and impact evaluations, yet very few identified
statistically significant long-term effects.
In response, the United States began shifting away from standalone microcredit
initiatives, stating that what was needed instead was a more “sustained and multifaceted
approach” to addressing poverty and gender inequality.
This shift reflects a broader realization: to reiterate, credit alone cannot resolve
structural deprivation. Increasingly, development institutions are turning toward
integrated models that combine financial support with services like training, healthcare,
food security, and social protection.
On the ground, this rethinking has long been underway. In India, the
Self-Employed Women’s Association has promoted an approach that connects with union
organizing, asset-building, and access to essential services. They do this by organizing
women into cooperatives and advocating for labor protections, as well as facilitating
access to childcare, insurance, and housing.
Other organizations have adopted similar principles, embedding financial tools