Local communities in LDCs across the globe have been hit hard by the global financial crisis, with the already meagre economic and social gains made in recent years being abruptly put into reverse. Increasingly urgent calls are now being made for the international community to ‘do something’ to assist with job creation and income-generating initiatives to attempt to repair the situation, especially in the very poorest of communities. As in previous years, one of the most commonlyheard solutions being put forward is microfinance which, so the argument runs, is perfectly situated to help kick-start a ‘bottom-up’ recovery and a development trajectory animated by the poor themselves through selfemployment and microenterprises. In spite of much heady rhetoric and uplifting PR surrounding the microfinance model this past thirty years, even long-time microfinance supporters now accept that its track record is actually very weak indeed. For others, the evidence reveals that microfinance is more likely a part of the development problem, and not part of the solution: LDCs wanted sustainable development, but are largely ending up with microdebt peonage. With the dominant, commercialized microfinance model increasingly seen as problematic, many international development agencies, and LDC governments too, are starting to examine what might be better forms of local financial institutions to assist the poor. And what they are finding is that there are many local financial models and communitybased financial institutions that actually have a very impressive record of promoting sustainable development and poverty reduction.
The CLP example Perhaps the most important requirement of a local financial system in the LDCs is that it should not simply ameliorate poverty and under-development, but should move to permanently eradicate these problems over time. Well-designed and managed community development banks can do this. The Caja Laboral Popular (CLP) in the Basque region of northern Spain is one such locally-owned and controlled institution that has succeeded in supporting enterprise development in a historically backward and conflict-affected region. The CLP is a development bank that
MILFORD BATEMAN is a research fellow at the Overseas Development Institute in London, United Kingdom, specializing in access to finance and enterprise development issues.
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Milford Bateman argues that it is community-driven financial institutions rather than microfinance that can help poor people in Least Developed Countries move out of poverty
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power of the community supported cooperative enterprises as the lynchpin around which the community could begin to develop and rapidly reduce poverty in a socially optimal manner. For example, cooperatives were founded near to where the members lived so they could easily travel to and from work, a decision that gave members more free time to enjoy their family lives. Thanks to its deep roots in the community, and because of various democratic checks and balances, the CLP has managed to successfully steer clear of both corruption and mismanagement. All told, in a little over 30 years, a once poor region was turned into one of Europe’s richest, most socially inclusive, and culturally vibrant regions. Is the CLP experience a one-off? Not at all. Broadly similar results were achieved in northern Italy after 1945, when a network of cooperative banks and special credit institutions (SCIs) were decisive in reconstructing the physical and social infrastructure destroyed during the Second World War. By quickly mobilizing savings and then recycling these savings into long-term investment funds geared up to support potentially sus-
tainable and/or fast-growth businesses, especially cooperative enterprises, these community-based financial institutions helped a conflict-ravaged region become perhaps Europe’s most economically and socially advanced. Importantly, they were able to develop methodologies to identify the best business prospects and then to carefully support them down the years. In some cases, government financial support was needed (as in the case of the SCIs), but this expenditure could not be seen as anything other than a fantastic investment, given the economic development and poverty reduction outcome achieved.
Governance issues Spurred on by such uplifting examples, a growing number of LDCs have begun to (re)explore the idea of local cooperative banks and other community-based financial institutions. Many accept that the cooperative banking concept is a sound one, but the paramount issue is how to get the governance issues right. Privately owned, profit-driven financial institutions in many LDCs very often undermine trust in the community and create