Requiem for Microcredit? The Demise of a Romantic Ideal

In the late 1990s, microcredit attracted the attention of Canadian policy-makers as a promising solution to problems of access to loan capital for small business startups. During the same period, Canada's largest microcredit provider arrived at the conclusion that microcredit was not a sustainable form of lending in Canada and other countries of the North. Drawing on the tension between these two perspectives, this article analyses the potential and the limits of microcredit in the Canadian context. The article elaborates on the elements of the microloan transaction, explores microeconomic rationales for this distinctive form of lending and examines the record of Canada's major microcreditor. It argues that microcredit failed to meet the objective of stimulating the development of very small businesses because the core lending technology - the peer supported loan--imposes substantial implicit costs on debtors in addition to the explicit prices they must pay for the loans, and shows that debtors' responses to Canada's most ambitious microcredit programme support this claim. While the article questions the project of encouraging microenterprise as a local development strategy, it suggests that expansion of access to loan capital requires a focus on the lending technologies of conventional financial service suppliers rather than support for microcredit intermediaries. The article concludes by noting the development of small business versions of consumer credit instruments, such as credit cards, and consumer lending technologies, such as credit scoring and suggests that these developments may signify an emerging process of "consumerization" of small business lending that warrants further investigation.