9: The Destructive Role of Microcredit in Post-apartheid South Africa
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161 Chapter Nine The Destructive Role of Microcredit in Post-­ apartheid South Africa Milford Bateman and Khadija Sharife Introduction The end of apartheid in South Africa in 1994 heralded the arrival of the international development communityequipped with a plan to promote a thriving, nonracial capitalist economy. A key component at the local level was the microcredit model. Proclaiming that it would rapidly bring new jobs, incomes, empowerment , fairness, and dignity to the viciously exploited black South African population , the microcredit movement created the widespread expectation that significant progress was just around the corner. Right on cue, the initial reports from both the microcredit institutions (hereafter MCIs) and their supporters in the international development community appeared to back up this prediction. All looked to be going according to plan. But it was not. Since 1994 the functioning of most poverty-­ stricken black South African communities targeted by microcredit has been very seriously undermined, while—not coincidentally—a small number of commercially savvy white South African male individuals and white South African–­ owned institutions have enjoyed stratospheric financial rewards by supplying this microcredit.The purpose of this chapter is to illustrate how and why the microcredit sector evolved into one of the most destructive market-­ driven interventions in South Africa’s post-­ apartheid history. Some Historical Background The Role of the Informal Economy in the Apartheid Era The African continent has a long history of community-­ based finance (Shipton 2010). This history includes South Africa, where the poorest communities were 162 Milford Bateman and Khadija Sharife always very much engaged with, among other institutions, the traditional local moneylender (mashonisa), rotating savings and loans associations (ROSCAs), and funeral clubs (stokvels).These long-­ standing local institutions were formed in and by the black South African community as a response to a shortage of capital needed to maintain and expand simple consumption needs, as well as to support some artisanal production and small-­ scale farming activities. This shortage of capital arose because the main banks and other financial institutions in apartheid South Africa were almost exclusively focused on supporting the white South African community, particularly the big business community as it went about extracting and exporting the country’s very rich reserves of raw materials, notably its gold, platinum, and diamonds (Bond 2013a). Under apartheid, however, much financial support was provided to local white South African–­ led economic development projects, such as industrial small and medium enterprises (SMEs), agricultural and marketing cooperatives , and family-­ farming operations. In terms of stimulating local economic development, this effort was very successful. In many respects, formal SMEs and family farms owned by the white South African community and linked into markets through membership of a cooperative became the bulwark of South Africa’s economy under the apartheid system. And, as intended, this economic success helped to support apartheid in the face of growing pressure from the impoverished majority black South African community, and from the international community, for apartheid to end.1 The result of these local financial measures was that South Africa was able to develop the most technically sophisticated SME sector in all of Africa. Robust local financial institutions also became skilled in providing long-­ term financial support for white South African–­ owned family farms and, in particular, for the white South African–­ owned agricultural cooperatives that very competently processed, packaged, and marketed their members’ outputs.Thanks to this high level of state support, including carefully targeted subsidized credit provided by the Land and Agricultural Development Bank (the “Land Bank”), apartheid-­era South Africa was able to achieve food security, and it even began to export agricultural produce to neighboring African countries. At the same time, the South African government’s unwillingness to provide the black community with a similar level of enterprise and agricultural development support (financial and nonfinancial), as well as the legal right to actually engage in such business activities, helps to explain why almost all black South African communities failed to develop their own sustainable enterprise sectors. The Destructive Role of Microcredit in Post-apartheid South Africa 163 Poverty and joblessness in the black South African community under apartheid were thus endemic by design. In the late-­apartheid period, with international sanctions really beginning to bite hard, the ruling white South African elite decided that something needed to change. They thought that providing wider opportunities for petty entrepreneurship in the black South African community would go some way toward dissipating the anger caused by unemployment, grinding poverty, and rising inequality. They hoped that...



Subject Headings

  • Rural development -- Developing countries.
  • Microfinance -- Developing countries.
  • Small business -- Developing countries -- Finance.
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