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Another witty animation by the RSA, this time featuring everyone’s favourite misanthrope. Slavoj Žižek’s provocative thesis is that attempts to weave ethics into consumption – for instance with the Fairtrade label – merely serve to make the inbuilt injustices more durable: “The proper aim is to try and reconstruct society on such a basis that poverty will be impossible, and the altruistic virtues have really prevented the carrying out of this aim.”
We can buy exploitative and corporate items, and the anti-exploitative anti-corporate antidote is already included in the product, like ethical coffee at Starbucks. We can increase our wealth while pursuing sustainability or equity, like SRI. We can lend money for profit and promote virtues like entrepreneurship or “financial inclusion”, as in microfinance.
One of the things that make blogs particularly interesting are series. The “series” series recommends series at related blogs.
When Daniel Rozas warns, I listen. Rozas forecasted the crisis of microfinance which broke out in India in late 2010, warning as early as November 2009 that Andhra Pradesh was the most saturated microfinance market in the world alongside Bangladesh, and mass defaults could begin any time.
I can’t predict whether the microfinance bubble I believe exists and continues to grow in Andhra Pradesh and other south Indian states will deflate quietly or burst spectacularly. [...] In their pursuit of growth, many MFIs have continued to add large numbers of new customers in Andhra Pradesh and other highly saturated regions – I believe that is irresponsible. [...] The spark that sets off a large-scale delinquency crisis can be anything and could come at any time – a rapid drop in economic growth, a populist political movement, a religious decree, or a collections effort gone bad. One can’t control the spark, but one can control how much fuel that spark can ignite.
Since this February, Rozas has been outlining the scenario of a possible further repayment crisis in a series of posts on the Financial Access Initiative Blog. He says self-regulatory efforts over the past years have been important, but perhaps not enough to stem lending excesses in certain countries (I would agree). Looking at indebtedness and lending at the sub-national level, Rozas reveals a fairly alarming picture in the Mexican state Chiapas, which shows similar patterns to Andhra Pradesh in 2009.
But it is Rozas’ attunement to the political economy of microlending which sets him apart from most sector consultants. Read the rest of this entry »
Suddenly, out of the blue, a debate about microfinance and child labour has erupted. Why?
Underage work caused by microloans is an uncomfortable topic for the microfinance sector, given the moral panic easily associated with child labour. It’s nearly impossible for the industry to publicly make dismissive or nuanced statements on the issue. David Roodman (self-styled “impertinent inquirer“) has now stepped up to the plate, publishing a thought-provoking short essay on his blog which critiques recent moves towards – or rather: rumours of some consideration being given to the idea of – enshrining policies against child labour in the microfinance sector’s transnational self-certification schemes.
Yes indeed, what are we going to do about it?
Photo: Children’s Bureau Centennial, Creative Commons Attribution 2.0 Generic
Roodman assumes Hugh Sinclair (self-styled “microfinance heretic“) to be a driving force behind this. While I have my doubts about it being that simple, I do think that, while not a driving force, Sinclair could be a contributing factor.
Which, incidentally, brings me to my hypothesis about the actual issue of child labour. Is microfinance a driving force? Hell no. Could it be a countributing factor? Logically yes. Consider these two very simplified causal chains:
The Andhra Pradesh crisis has been something of a turning point in public assessment of microfinance, with a suicide wave caused by widespread overindebtedness badly tarnishing the sector’s image in India as well as abroad. Some Indian politicians are now beginning to identify the idea of alleviating poverty with microfinance as “crap“.
Source: M‐CRIL Microfinance Review 2012 (vii)
Microfinance in India remains in protracted decline since 2010 (see graph), although talk of “green shoots” and catharsis after “near-death experience” has been around for some time. The industry’s stance for the past two years has been to deny responsibility for any wrongdoings, downplay its role in precipitating the dozens of suicides, and claim that the AP government’s October 2010 legislation was a surprising and unjust crackdown on healthy practices. I have claimed otherwise.
Yet, fairly surprisingly, my new paper investigating the causes of the crisis, and a recent interview with SKS Microfinance senior managers come to some similar conclusions about the causes. In particular, both versions see the unregulated hyper-competitive market as a significant cause of the tragedy which led to microfinanciers’ troubles. How can this be?
The power of financial markets and financial actors over economies and societies is as hard to deny as it is to conclusively prove. From subprime mortgages to Greek debts to microloans, different people and different sectors all feel it in their own ways. “Financialisation” (Epstein, Krippner), “finance-led growth regime” (Boyer), “financial market capitalism” (Windolf) represent only some of the attempts to come to grips with this sea change; but none have provided decisive answers as to the “why” and “how”.
A new book proposes seeing finance (in the tradition of the French “Régulation School”) as a type of regulator – a subtle, insidious one. “Finance: The Discreet Regulator: How Financial Activities Shape and Transform the World” collects perspectives on how “financial markets are the seat of regulatory processes initiated and developed by core-capitalist financial institutions such as banks and audit firms”. Read the rest of this entry »
Hugh Sinclair is a (self-described) whistleblower who recently published a book coming clean with the microfinance industry. Paul Lagneau-Ymonet and Phil Mader had the privilege to ask him how microfinance went astray and “betrayed” the poor, and why the public and donors are being deceived. His book “Confessions of a Microfinance Heretic: How Microlending Lost its Way and Betrayed the Poor” has been widely noted by international media and his blog follows the day-to-day antics of the microfinance industry.
Hugh, you worked in microfinance for 10 years, so you must have at least for some time believed in this as a tool for reducing poverty. When did you become disillusioned, and why?
I can’t say there was one moment of revelation. The first concerns started on my very first project. I was working in Mexico with a Grameen replica institution, and right from the beginning I noticed many of these people aren’t using the money for a productive use, and many of them aren’t actually very poor at all. But I told myself maybe I’m just in a bad institution.
I worked in Mexico for a couple of years, then I moved to Mozambique. There I discovered an even worse situation. Not only was microfinance not having much impact, but the institution that I was working at was misappropriating the savings of the clients. They were forcing the clients to make a savings deposit, and then they were using that deposit to subsidise their own operating costs, which generally involved paying high salaries to ineffective expat senior managers to fly business class and drive around in fancy 4x4s, which to me didn’t seem like a particularly good use of the client savings. It’s theft – I mean, you can’t just take people’s savings and spend them on your salary.So I thought: wow, this is a terrible institution. But maybe I’ve just been unlucky that I’ve stumbled into a few bad ones. Why don’t I go over to Europe and work at a microfinance fund, and my knowledge about the difference between a good and a bad microfinance institution will be useful to direct their money towards good microfinance.
“The problem is that [microfinance funds] have a weird set of incentives that aren’t aligned with their own investors, and also aren’t aligned with the interests of the poor.”
CRESC, the Centre for Research on Socio-Cultural Change, is a well-known institution for many working on finance in sociology and political science, as well as researchers in cultural and media politics. By uniquely bringing together researchers from these fields, its annual conference in Manchester is an inspirational forum for unorthodox interdisciplinary exchange, without the numbing genericity of academic mega-conferences.
The theme chosen for this year’s conference (5-7 September) proved an excellent basis for taking stock of economies and societies in crisis: “Promises“. One striking feature of this conference was the presence of journalists, NGO representatives, and professionals like asset managers (as spectators and presenters) alongside academics, which added diverse perspectives and precluded overly technical/theoretical debates. (Other conferences may follow this good example.) Being spoiled for choice among the many panels, I mostly attended the ones on finance, missing the more culture-heavy sessions. Therefore, the three observations which impressed themselves upon me relate to the more political-economic questions in coming to grips with the present state of capitalism. Three insights from Manchester:
1. Financialisation is so pervasive and wide, many facets are only now being explored. Read the rest of this entry »
Over on his blog and on Indian financial news site Moneylife, microfinance expert Ramesh Arunachalam has started an interesting series of posts. They investigate the charges levied by Hugh Sinclair against microfinance investment vehicles (MIVs; or microfinance investment funds) in his recently published book, Confessions of a Microfinance Heretic. Arunachalam is approaching the questions raised by the book with his characteristic meticulous diligence; very data-driven. As usual, he raises poignant questions rather than easy answers, and I strongly suspect his detective work will remain a delight to follow.
Incidentally, some of the points raised by Sinclair’s book are very close to Arunachalam’s fascinating causal reconstruction of the Indian microfinance crisis. The two most obvious ones are: (1) lack of transparency and meaningful regulation in the microfinance industry, in Indian microfinance as well as in the global microfinance investment sphere. (2) The pressures of capital, in that agents bestowed with large amounts of easy money under these circumstances are unlikely to make wise decisions (let alone decisions truly benefitting their stakeholders). These are Indian MFIs who lend as if throwing money from helicopters, or global MIVs investing in low-quality-high-profitability MFIs because they need an easy outlet for their money.
Particularly interesting is that Arunachalam asked investors for statements or rebuttals to Sinclair’s allegations, apparently to no avail or evasive answers. Also, reports promised by the microfinance transpareny/labeling initiative LuxFLAG were not available. So it will be interesting to see if Arunachalam finds out what some investors’ explanations are for having continually invested in the evidently non-law-abiding Nigerian MFI LAPO.
Also, David Roodman at the Centre for Global Development has reviewed the book, his main contribution being to “add nuance”. He too sees the key message of “Confessions…” in its exposition of the uniquely problematic role played by MIVs in the microfinance money chain, even though he criticises it for its critical tone. No comment on Roodman’s discussion of different people’s character traits (at bottom).
Last-minue addition: Sam Mendelson, co-author of the Microfinance Banana Skins reports, concludes “Ultimately, Confessions is frustrating and fascinating in equal measure” in a similarly even-handed but more personal review on microfinance focus.