Excerpt from “The Political Economy of Microfinance: Financializing Poverty”, Chapter 6, At the Crossroads of Development and Finance. (see other excerpts here)

Re-evaluating microfinance

Although definitive policy prescriptions go beyond the scope and intent of this book – as a political economy of microfinance, not a policy appraisal – I hope that it may contribute to a reconsideration of microfinance… Putting the current state of impact evidence together with my analysis of microfinance as financializing poverty begs the question: If we have no proof that microfinance reduces poverty, but we do know that it extracts labour power from the poor, why should we continue with microfinance? And since the research presented here draws into question the hopes placed in, and the policy attention devoted to, microfinance as a developmental tool, what practical lessons can be drawn?

Enthusiasts believe that, in the case of the microfinancial industry, the interests of capital owners, financial intermediaries and the global poor can be aligned. That the poor see a share of their labour power extracted by a new financial industry might well be justifiable (in terms of social policy), if measurable, demonstrable benefits to the poor were to systematically arise.[1] But the fact that, on the one hand, systematic benefits for the poor are difficult if not impossible to demonstrate after more than three decades (in studies whose designs aimed to find these benefits, and whose frame of comparison was that of doing nothing at all), while on the other hand, microfinance does demonstrably impose systematic costs on the poor, makes the arguments put forward in its defence look increasingly questionable.

Furthermore, instead of purging them, the microfinancial industry has come with many of the trappings of “normal” finance: excesses, crises, bailouts, overindebtedness, fraud, sale on false premises, collusion, predatory lending, abusive practices, irrationality, speculation and greed. These aspects of the credit relation constructed by microfinance should also be considered in any overall appraisal.

One perfectly logical option for policy-makers would be to discontinue their direct and indirect support (including financial support, logistical support and conducive policy changes) for microfinance systems, until the day their beneficence can be proven. Another logical possibility would be to regulate the sector in such a way as to ensure that the interests of investors and MFIs cannot supersede those of their clients. Yet the sector remains deeply averse to such regulation with teeth – such as interest rate caps or loan usage restrictions – and will likely strongly resist it by employing arguments that emphasize poor people’s right to choose between different credit sources and modalities which would be curtailed by regulation.

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Yesterday, the papal encyclical “Laudato Sii” was finally released. Environmentally engaged members of the Roman Catholic Church have awaited this day with cautious excitement since January 2014, when it was first announced that Pope Francis prepares such a document on “the ecology of mankind”. Over the last months, the event has also received remarkable attention in the wider public all over the globe.

The release of the encyclical exemplifies how religious actors can influence regulatory processes. Short-term, it may affect current political events with judgments about concrete political choices, influencing their (il)legitimacy. For instance, the papal encyclical calls the final document of the Conference of the United Nations on Sustainable Development in Rio de Janeiro in 2012, “ineffective”. Further,

the strategy of buying and selling “carbon credits” can lead to a new form of speculation which would not help reduce the emission of polluting gases worldwide. […] it may simply become a ploy which permits maintaining the excessive consumption of some countries and sectors (Laudato Sii).

The release may also create a new momentum of debate and hope in the year of the 21st Conference of the Parties (COP21) to the United Nations Framework Convention on Climate Change (UNFCCC) and the 11th session of the Meeting of the Parties (CMP11) to the 1997 Kyoto Protocol in Paris during which parties aim for a new, legally binding agreement.

Long-term, it is a significant theological document meant to give direction to contemporary Catholicism and 1.2 billion Catholics around the world. Even if we cannot know how it will be interpreted in thirty years from now, its effect is likely to last longer than the next international climate agreement. But despite or especially because of its character, it enfolds its dynamic only with its reception by an audience willing and eager to engage with it. At least three factors have helped to turn the publication of the encyclical into a widely received event which is likely to deserve all the hope that is attached to it.

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Excerpt from “The Political Economy of Microfinance: Financializing Poverty”, Chapter 2, A Genealogy of Microfinance.

Two basic types of story are commonly told about the origins of modern microfinance. One is the underhistoricized version, whereby Dr Muhammad Yunus (and/or a handful of other pioneers) “invented” or “discovered” it: “The modern microfinance movement began in Bangladesh in 1977, as an experiment by economics professor Muhammad Yunus … Over the next three decades, the model he established became widely accepted and replicated in other countries as a way to fight poverty. Microfinance spread around the world and earned Yunus a Nobel Prize in 2006” (Wharton Business School 2011). In this and similar tales, before the 1970s, microfinance has no meaningful history.

The overhistoricized version meanwhile draws parallels and connections with various prior credit systems and financial interventions, portraying microfinance as part of a long lineage of poverty-alleviation programmes through credit. For instance, “modern microfinance did not arise de novo thirty-five years ago. The ideas within it are ancient, and their modern embodiments descend directly from older successes” (Roodman 2012a: 38). Here, today’s microfinance sector is all history, and merely the temporary pinnacle of a long, quasinatural evolution.

Both stories are unsatisfactory, not least because they downplay (or ignore) the political-economic context of microfinance; they overlook the “visible hand” of the state in its emergence; they fail to show how microfinance arose out of particular historical circumstances (neither as sudden discovery nor as revival of ancient ideas); above all they are blind to the insecurities, uncertainties and contingencies which shaped today’s microfinance sector. Microfinance was neither a sudden and miraculous discovery nor a historical necessity.

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Excerpt from “The Political Economy of Microfinance: Financializing Poverty”, Chapter 3, The Financialization of Poverty. (see other excerpts here)

Microfinance … performs both financial intermediation and financial innovation … it intermediates across time and space by creating entitlement relationships that reach from now into the future and from capital providers to borrowers. It innovates in generating new financial technologies which bring fresh borrowers into connection with capital-providing actors who can pursue not only financial goals, such as rapid turnover and growth of capital via above-market interest rates, but even quasi-charitable ideals.

The microfinance industry has developed (and continues to develop) technical means for channelling substantial quanta of capital directly to people living without collateral or assets at the bottom of the global income scale, technologies including group lending, social collateral, standardization and computerization, ratings of MFIs, and securitization of loan portfolios. The growth and stability of global microlending, at between 17 and 78 per cent annually during 2002–2009, and 10 per cent on average since then, both demonstrates the resulting system’s efficacy and indicates that capital-owners expect it to be durable.

The Cost of Microfinance

Surplus extraction through microfinance, 1995–2012

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Anonymous_emblem.svg

Logo of “Anonymous”

It all began with a blog post back in 2012 entitled “Anonymous’ Boundaries: Expelling by Exposing” that I had prepared prior to a workshop on “organization as communication“. It describes how the so-called “hacker collective” Anonymous had expelled one of its self-identified members by exposing its full name, address and other contact information. The closing paragraph of this post reads as follows:

Of course, Anonymous is an extreme case. But exactly because of its distinctiveness I think there is a lot to learn about organizing practices in general.

After the workshop I teamed up with Dennis Schoeneborn and together we tried to harvest the explanatory potential of the case. Our joint efforts resulted in the paper “Fluidity, Identity and Organizationality: The Communicative Constitution of Anonymous”, which is now available as a pre-print version at Journal of Management Studies: Read the rest of this entry »

Excerpt from “The Political Economy of Microfinance: Financializing Poverty”, Introduction, A Framework for Engaging Microfinance.

Concepts and Euphemisms

There is often confusion about some terms that are commonly used in discussions about microfinance. Before the substantial chapters begin, an explanation of terminological choices which affect the analysis [in this book] is essential.

Microfinance vs. microcredit – There is no consensus definition of microfinance. We may stick to a condensed version of CGAP’s definition [1], following which microfinance is “financial services for poor and low-income people, offered by different types of service providers, most of which designate themselves as microfinance institutions”.

Yet some readers might be irritated by the usage of the term “microfinance” in a book which pays relatively little attention to services such as microsavings or microinsurance. Though I differentiate clearly between microfinance and microcredit in a historical frame – where “microcredit” was the dominant term during an earlier period, while thereafter “microfinance” fell into favour – the term “microfinance” is used otherwise throughout this book to refer to the entire system, even where my analysis focuses on the credit dimension.

Why? First, even though “microfinance” is a relatively recent term – Seibel (2005) claims to have coined it in 1990 – hardly anyone now speaks of “microcredit”, let alone “microenterprise finance”, which was used mainly in the 1990s. The fact that “microfinance” is the dominant term may already be reason enough to use it. But, second, (a) microinsurance and (b) microsavings are more hype than reality. They are practically nowhere standalone businesses, while microcredit often is. Credit was, and remains, the essential element of microfinance, as the most profitable and prominent element.

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About a week ago I blogged about misleading information on Creative Commons licenses provided by one of the leading scientific publishing houses in the course of a textbook project I am involved in. In the closing paragraph, I wrote that “we plan to insist on including the respective figures in the volume”. After doing so, we have now received another table with “permission queries” from the publisher with even more disappointing misinformation. The query with regard to the photo of the Rana Plaza Collapse in full:

Although creative commons states that you can reproduce work commercially, it states that you can only do so by retaining the creative commons rights (aka no copyright) on the reproduction which would prohibit us from placing a copyright on the book. We also have no proof of who took the photograph which makes it too risky to include. We need to remove this photograph

Again, this is misleading on many different levels. First of all, “creative commons rights (aka no copyright)” is not just misleading but simply wrong. Creative Commons does not mean “no copyright”, it means “some rights reserved”. Actually, Creative Commons is entirely based and dependent on copyright; only someone who has the copyright of a work is able to (re-)license it under a Creative Commons license.

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google-good-or-badEllen P. Goodman (Rutgers University School of Law) and Julia Powles (University of Cambridge, Faculty of Law) have assembled 80 scholars (including myself) in support of an open letter to Google, which demands ”

Aggregate data about how Google is responding to the more than 250,000 requests to delist links, thought to contravene data protection laws, from name search results.

The letter mentions two main reasons why more transparency is needed:

(1) the public should be able to find out how digital platforms exercise their tremendous power over readily accessible information; and (2) implementation of the ruling will affect the future of the RTBF in Europe and elsewhere, and will more generally inform global efforts to accommodate privacy rights with other interests in data flows.

Read the letter in full, which ends with a long list of unanswered questions, over at the Guardian or at Medium.

(leonhard)

When publishing a scientific work or a textbook in a reputable publishing house, the final steps before publication usually involve signing over exclusive copyrights in a standardized manner. A standard clause in such copyright forms is that the author has to warrant that she either is the sole owner of the copyright in the contribution or has obtained the permission of the owners of the copyright (see Figure below, an excerpt of such a standard copyright form).

excerpt-copyright-form

While publishers thereby shift all responsibility with regard to rights clearing issues over to their authors, they regularly devote particular scrutiny to figures and tables. For any such figures and tables authors have to provide explicit permission statements. Even though including a properly referenced figure or table from another work in a scientific work or textbook could be – and probably often is – fair use (US copyright) or might be justified by exceptions for quotation, research and education (EU copyright), publishers refuse to take any risk that could be related to such a legal standpoint. Such a restrictive interpretation and enactment of copyright by publishers not only places unnecessary burdens on authors but also further worsens practicability of current copyright in academic contexts.

However, as I have learned in the course of contributing to a textbook with case studies on innovation and project networks, publishers might even decide to reject figures where permission is explicitly granted in form of a standardized Creative Commons license. In this particular case, in a spreadsheet entitled “permission queries”, the publisher listed all exhibits that were considered in any way problematic.

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Excerpt from “The Political Economy of Microfinance: Financializing Poverty”, Chapter 3, The Financialization of Poverty.

Reinforcement for the microfinance narratives of empowerment through finance, and of poverty being a problem of finance [see the last posted excerpt], comes from a vision of poor people as being inherently (or even exceptionally) financially minded subjects. Portfolios of the Poor, written by a team of practitioners and academics who tracked borrowers’ financial lives via financial diaries, has emerged as the key text of the ascendant “financial inclusion” paradigm. Engagingly written but not addressed to very broad audiences, it chiefly provides legitimation among development practitioners, bankers and microfinance experts for their visions of helping poor people to master their lives via financial services. The poor are depicted as Third-World “portfolio managers” (Collins et al. 2009: 238), as savvy and skilful as their Wall Street counterparts, and equally in need of finance. Portfolios effectively portrays the denizens of megacity slums and remote villages, to follow John Steinbeck, as “temporarily embarrassed millionaires” who have merely lost their bank accounts.¹

Underlying the claims made by Portfolios’ authors is the assumption that low-income individuals in the global South are guided by the cognitive framework of the purest specimen of Homo oeconomicus – the free investor. The authors interpreted nearly every financial decision inscribed in their subjects’ financial diaries as rational and optimal, and thereby ultimately deduced that MFIs should feed poor people’s ubiquitous credit needs for everything, not just microentrepreneurship.

Using a loan at 36 per cent interest to buy gold jewellery, as one diarist did, for instance was a sensible choice because “The fact that the loan could be repaid in a series of small weekly payments made it manageable … Price was only one aspect of the loan, less important than the repayment schedule that matched instalments to the household’s cash flow” (Collins et al. 2009: 23). That this diarist had to pay a 36 per cent surcharge for her “investment”, relative to what others would have had to pay, was a non-issue. Read the rest of this entry »

The Book

Governance across borders: transnational fields and transversal themes. Leonhard Dobusch, Philip Mader and Sigrid Quack (eds.), 2013, epubli publishers.
July 2015
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