The movement reached its apotheosis in November 2006 at the Microcredit Summit in Halifax, Canada

Unfortunately, Yunus had embraced a long-disproven fallacy known as Say’s law — the idea that supply creates its own demand. As the late economist Alice Amsden explained, the core problem in developing countries is not the supply of basic items, but the sheer lack of local demand (or purchasing power) required to pay for them.

[...] The reality behind the microcredit hype is that the vast majority of those who took out a microloan to invest in some income-generating project ended up failing or else displacing other struggling informal microenterprises operating in the same sector.

But profitability is just one half of the explanation for the microcredit model’s widespread support among policymakers, politicians, and ordinary people. The issue of ideology is also central.

Microcredit is supremely attractive to the neoliberal development community and neoliberal politicians. Within these circles criticism of microcredit and the central role that individual entrepreneurship supposedly plays in the development process is simply not tolerated. Instead it is aggressively rebuffed, because such skepticism is, in essence, skepticism of capitalism itself.

This is the reason for the huge PR effort currently being mounted by the World Bank and others — and backed up by a range of like-minded politicians, foundations, and high-profile NGOs in the US and elsewhere — in support of “financial inclusion.” As Mader and Sabrow demonstrate, one of the financial inclusion project’s central goals is to physically rescue high-profile microcredit institutions from (deserved) obsolescence and closure.

However, Kiva’s emphasis on providing small microloans only semi-directly (that is, through microcredit institutions) to micro-entrepreneurs in developing countries has almost nothing to do with actually fighting poverty. The “Kiva experience” is much more about Kiva supporters seeking a form of personal gratification by donating a small sum, as well as validation that their ideology (capitalism) actually works.