Bolivia during the global crisis 1998-2004: towards a macroeconomics of microfinance

The macroeconomic role of microfinance appears to have varied enormously between country cases, as notably exposed by the recent wave of macro-economic crises. For example, in Indonesia in the late 1990s microfinance appears to have played a notably counter-cyclical role, whereas in Bolivia, the main focus of this paper, its role was in most cases to intensify rather than restrain the crisis. We find part of the explanation for this in the behaviour of government towards microfinance (much more conciliatory towards defaulting debtors in the Bolivian case) and in the structure of demand (unfavourable, in Bolivia, to the distribution and service sector which is the main market for microenterprise). However, closer examination of the Bolivian case suggests that institutional design also played an important role. In particular, those organisations which provided savings, training and quasi-insurance services bucked the trend of rising default rates and falling lending through the crisis and did particularly well, whereas the new breed of consumer-credit microfinance organisations did particularly badly and in several cases went out of business. This experience suggests,in particular, that it may be appropriate to call into question the fashionable´ minimalist´ (credit-only) model of microfinance, as certainly in Bolivia it was principally the credit-plus institutions which proved more financially disciplined and more resilient to crisis.