You are currently browsing the tag archive for the ‘microcredit myth’ tag.
CGAP is the World Bank’s (not-quite-so-)arm’s-length sub-organisation whose role is to promote microfinance. CGAP (“see-gap“) once stood for “Consultative Group to Assist the Poorest“, now it officially stands for “Consultative Group to Assist the Poor”. Actually, if nomen were to be omen, it should probably stand for “Consultative Group to assist (those who lend to) the Poor (and not-so poor)”.
So many functions … but can it cut?
I don’t expect CGAP to function as an independent evaluator of microfinance. What I do expect is that CGAP publications have minimum standards of research quality and logic.
The most recent CGAP report, entitled “Latest Findings from Randomized Evaluations of Microfinance” (Bauchet et. al.), however, is appalling on both counts. Nearly everything about this report is problematic. It is racked by wishful thinking – to paraphrase: “we may not have evidence that microfinance does what it was supposed to, but we still believe it works” – and it has a disturbing feel about it, which derives from: (1) what the authors have left out, and (2) the heavy tension between concern for the poor and patronising them.
Recently, I’ve been writing a section about the history of microfinance for my dissertation. Having read around a bit, I feel the need to correct a myth that seems all too common among microfinance enthusiasts: that microfinance follows in the footsteps of German cooperative banking. I will admit this is becoming something of a pet peeve. But in fact, microfinance and the cooperative movement have very little in common. Here’s an explanation.
At least not all microfinance histories follow the simplistic story which casts microfinance as an invention of Muhammad Yunus in 1976, essentially saying microfinance has no history. But there is also an account of microfinance which I would call the over-historicised account, which sees microfinance as part of a very long history of credit. Mainly, the idea is that pilanthropists have been using credit to “do good” for aeons because the poor have always needed credit, so microfinance is just the modern iteration of this idea. Muhammad Yunus has even been compared to Friedrich Wilhelm Raiffeisen (by Bernd Balkenhol at the ILO).
Can you tell the difference? Muhammad Yunus; F. W. Raiffeisen
But I don’t think the poor have always needed credit (definitely not before the monetised economy), and I don’t believe microfinance really follows in the footsteps of, say, the Irish loan societies or the German cooperative movement. The particular for-profit financialised “social business” commercial enterprise which is modern microfinance bears very little resemblance to anything before it; it is distinctly a product of the financialised capitalism of our time.
Small loans for women, often organised in groups, to build their own businesses – that’s a standard model of microfinance, and many microfinance organisations are focused on women. In fact, it used to be the case that 95 percent of Grameen Bank’s borrowers were female.
Through the establishment of self-owned businesses which provide an independent income stream, it is theorised (or often simply claimed) that women will be empowered thanks to microcredit. A compelling argument it is, but the evidence, sadly, is thin.
Many men send their women to obtain loans which they themselves would not be eligible for, as Weber (2002) found. Thereupon they allocate the loan within the family as they see fit, possibly buying a rickshaw which they themselves pull, or on-lend to a relative with an existing business. However, if repayment becomes a problem, it is the woman who is held responsible by the microfinace organisation, and is then subject to legal and social sanctions. Read the rest of this entry »
Since the beginning, proponents of microcredit have argued that they have found a self-sustaining, profitable route to reducing poverty: borrowers repay loans with enough interest to cover the costs plus an increase in the bank’s capital base, plus a payout for its owners. Sceptics of this story point to the fact that most microcredit programmes are still subsidised by donors. They argue that this is because many borrowers cannot afford to repay so dearly, and that the cost of capital should be lower in order to help more and poorer people.
Welcome to the ‘sustainability versus outreach’ debate. At the core, it is about the question whether incentives or impact matter more. Time to examine the arguments. Read the rest of this entry »
Credit is a useful lever for helping businesses grow. Many poor people in the developing world are self-employed farmers or petty traders, so technically they can be conceived of as businesspeople. But most farmers are actually subsistence farmers, working not for the market but for their own family’s meals, and many traders are simply traders for lack of a better alternative of stable, paid employment. They resiliently eke a meagre living out of their harsh surroundings, and truly deserve admiration by comfortable Westerners. But does that necessarily warrant them being treated as Schumpeterian entrepreneurs, willing and able to “creatively destroy” their traditional economic environments, if only they were lent the necessary finance?
We should keep in mind that people are incredibly diverse, and this must be taken into account and respected when formulating development policies. One-size-fits-all approaches have repeatedly failed in development history, and serve as a warning. Read the rest of this entry »
In the popular literature surrounding microcredit (or microfinance), a number of claims is repeatedly made which deserve a closer look. The mass media are full of heartwarming stories, anecdotes and PR-like representations of MFIs’ work, showing the apparent power of microcredit to improve the lives of the poorer inhabitants of this planet. In fact, many academic productions make similar claims without providing sufficient evidence to back them up.
In this way, the impression is being created that the development industry has found a panacea for poverty; a dangerous insinuation which can only lead to disappointment. Over my next few blog entries I will address and critically illuminate some myths – insufficiently supported claims or untested assumptions – which currently stand in the way of a balanced assessment of the true powers and drawbacks of microcredit as a development tool.