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Crisis in Nicaraguan microfinance: between the Scylla of business for profit and the Charybdis of clientelism

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  • Bastiaensen, Johan
  • Marchetti, Peter

Abstract

From the being a poster child of microfinance development, Nicaragua became one of the nightmares for the industry. The negative influence on the countries' repayment culture of the Non-Payment Movement, ambiguously related to the new Sandinista government, is typically blamed for the crisis. A closer analysis, however, reveals that features of the mainstream microfinance policies in Nicaragua are possibly more to blame for the crisis than the political turmoil, which opportunistically seems to have taken advantage of the underlying problems. Overfunding of regulated MFI-banks and promotion of excessive competition, in particular of these banks with the non-regulated MFIs, led to reckless lending and created over-indebtedness. Gradual professionalization and conventionalization also led to the erosion of social embeddedness –once at the core of the Microfinance revolution- and left MFI weak in the face of political challenges. And the obsession with profitability and 'finance only' implied higher interest rates and left many poorer clients with little or negative impact, lending credibility to the accusation of usury. While the Non-Payment Movement could be understood as a Polanyian countermovement to the problems created by market development, its ultimate political objectives however seem to offer only dubious perspectives for future inclusive economic development.

Suggested Citation

  • Bastiaensen, Johan & Marchetti, Peter, 2011. "Crisis in Nicaraguan microfinance: between the Scylla of business for profit and the Charybdis of clientelism," IOB Working Papers 2011.04, Universiteit Antwerpen, Institute of Development Policy (IOB).
  • Handle: RePEc:iob:wpaper:2011004
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    1. Park, Hwanil & Fortenbery, T. Randall, 2007. "The Effect of Ethanol Production on the U.S. National Corn Price," 2007 Conference, April 16-17, 2007, Chicago, Illinois 37565, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
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    Cited by:

    1. Davide Forcella & Guja Lucheschi, 2016. "Microfinance and ecosystems conservation How green microfinance interacts with Socio- Ecological systems Lessons from Proyecto CAMBio in Nicaragua and Guatemala," Working Papers CEB 16-008, ULB -- Universite Libre de Bruxelles.

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