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Microcredit in advanced economies as a "third way”: a theoretical reflection

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  • 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.

Suggested Citation

  • Canale, Rosaria Rita, 2010. "Microcredit in advanced economies as a "third way”: a theoretical reflection," MPRA Paper 21109, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:21109
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    File URL: https://mpra.ub.uni-muenchen.de/21109/1/MPRA_paper_21109.pdf
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    References listed on IDEAS

    as
    1. Sergio Navajas & Jonathan Conning & Claudio Gonzalez-Vega, 2003. "Lending technologies, competition and consolidation in the market for microfinance in Bolivia," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(6), pages 747-770.
    2. Philip Arestis & Asena Caner, 2010. "Capital account liberalisation and poverty: how close is the link?," Cambridge Journal of Economics, Oxford University Press, vol. 34(2), pages 295-323, March.
    3. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    4. Mark Schreiner & Jonathan Morduch, 2001. "Replicating Microfinance in the United States: Opportunities and Challenges," Development and Comp Systems 0109002, EconWPA.
    5. Joseph E Stiglitz, 2009. "The Current Economic Crisis and Lessons for Economic Theory," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 35(3), pages 281-296.
    6. Diego Lanzi, 2008. "Microfinance at a Crossroads," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 37(2), pages 203-210, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    microfinance; advanced economies; third way;

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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