nep-mfd New Economics Papers
on Microfinance
Issue of 2010‒03‒20
one paper chosen by
Olivier Dagnelie
Instituto de Analisis Economico, CSIC

  1. Microcredit in advanced economies as a "third way”: a theoretical reflection By Canale, Rosaria Rita

  1. By: Canale, Rosaria Rita
    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.
    Keywords: microfinance; advanced economies; "third way"
    JEL: D01 G21
    Date: 2010–02–25

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