Miley
Professor arthur basole
Econ 116
Feb 27th, 2014

Respond paper 4

The article “Microfinance and the Illusion of Development” by Bateman and Chang argue about how microfinance most often makes things worse. Microfinance is about small loan, microloan, which is used by poor people to support income for activities in daily life. The contemporary model of microfinance first experimented in Bangladesh by Dr. Muhammad Yunus. The assumption appeal of microfinance is to help poor people exit from their poverty life, establish a sustainable economic and social development trajectory. However, Bateman and Chang reject this view of microfinance. They said that microfinance creates a powerful institutional and political barrier to sustainable economic and social development, and also poverty reduction.
There are six ways that microfinance model is such an adverse impact on both the local community level and national economy level. First, they argue that microfinance model ignores the crucial role of scale economies. Microfinance produces microenterprises which enterprises and agricultural units that are very small and always operate below minimum efficient scale. All enterprise sectors operate below the minimum level makes it impossible for any enterprise to survive and prosper in a competitive business environment. Africa has the highest number of micro-entrepreneurs per capita in the world, and the supply of microfinance is increasing rapidly year by year. However, Africa still remains stay in poverty precisely because the increasingly microfinance-dominant financial structure in Africa is suitable only to evolve an enterprise structure overwhelmingly composed of very tiny units operating way below minimum efficient scale.
Second, the microfinance model ignores the fallacy of composition. The expansion of microfinance does not increase the total volume of