The Review of Austrian Economics, 18:1, 5–28, 2005.
2005 Springer Science + Business Media, Inc. Manufactured in The Netherlands.
Entrepreneurial Response to “Bottom-up”
Development Strategies in Zimbabwe
EMILY CHAMLEE-WRIGHT email@example.com
Professor of Economics, Beloit College, Beloit, WI 53511, USA
Abstract. Group lending and business training programs aimed at small-scale entrepreneurs have captured the
interest of development scholars, practitioners, and donors since the 1980s. Yet these strategies have not had much
impact in the context of urban Zimbabwe. Building upon ethnographic research conducted in Harare, Zimbabwe
and insights drawn from the Austrian school of economics, the case is made that group lending and business
training programs in urban Zimbabwe fail to meet the needs of most informal entrepreneurs because they offer a
poor cultural ﬁt with the target population, and because they are rarely able to cultivate entrepreneurial skills such
as innovation and market discovery among their clients.
KeyWords: Austrian economics, entrepreneurship, microﬁnance, group lending, informal sector
JEL classiﬁcation: B53, O17, O18, Z13.
Development literature in the 1980s and nineties marked an important move away from
sectoral development planning and towards an emphasis on indigenous entrepreneurship.
Rather than emphasizing the state’s role in ﬁlling the “entrepreneurial gap,” many scholars
and practitioners began to appreciate the potential for indigenous entrepreneurs to serve as
the vehicle for economic development (Boserup 1989, Ayittey 1991, Berger 1991, De Soto
1989). Yet signiﬁcant barriers, such as the gap between the formal ﬁnancial sector and the
mass of informal entrepreneurs, continue to limit the potential of indigenous entrepreneur-
ship (CGAP 2003).
Attempts to close this gap have suffered a difﬁcult history. Interest rate controls sup-
posedly aimed at relieving the problem only tightened access to scarce credit for informal
entrepreneurs (Anderson and Khambata 1985). Loan subsidization and guarantee programs
offered through national governments and international aid agencies resulted in high de-
fault rates and tended to bypass the target population in favor of elite groups (Anderson and
Khambata 1985, Deloitte and Touche 1998, Adams and Von Pischke 1992).
Partly in response to the failure of such initiatives, microlending programs that offer
group loans, or so-called “solidarity loans” have gained favor among development schol-
ars, non-governmental organizations (NGOs), international donors, national governments
and a few commercial banks. Success stories such as the Grameen Bank in Bangladesh,
BancoSol in Bolivia, Bank Rakyat Indonesia (BRI), and the more than 3000 village banks
scattered across 25 different countries based on the model pioneered by the Foundation for