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This post is provided by guest blogger Domen Bajde of the University of Southern Denmark.
As evidenced by inventive movements and campaigns (for a future example see Half the Sky Movement: The Game), the field of charity is undergoing considerable dynamics. As a skeptically-optimistic observer, I am happy to see research that explores such developments against the backdrop of broader material and social change, appreciating their innovativeness and critically questioning the suppositions, mechanics and stakes at play.
I recently stumbled upon a book sharing my skeptical optimism. Surveying historical change in Amnesty International and Oxfam advertising, Chouliaraki argues that poverty is increasingly instrumentalized, setting the focus on the “self” (of the Western donor), turning charity into an ironic spectacle largely shaped by “compassion fatigue” (a.k.a. avoiding stuff that is unpleasant). Rather than amplifying the voice of those in need, many charities end up prioritizing the interests/pleasures of donors.
This is a book review I wrote for the microfinance news site microDINERO about Hugh Sinclair’s controversial new insider/whistleblower account of the microfinance industry.
Hugh Sinclair, 2012: Confessions of a Microfinance Heretic: How Microlending Lost Its Way and Betrayed the Poor. San Francisco, CA: Berrett-Koehler Publishers.
Outside of the mainstream and microfinance’s promotional campaigns, many academics, NGOs, critical journalists and also former microfinanciers have quietly criticised microfinance for years – only to be ignored or dismissed as lunatics or ideologues. The problems in microfinance, however, are very real, and Hugh Sinclair’s controversial new book “Confessions of a Microfinance Heretic” makes them impossible to ignore.
For the few independent researchers, fortunately able to study microfinance without reporting to microfinance-supporting bodies or the major research groups (which happen to be mostly funded by the same organisations which fund microfinance), the problems of microfinance are not news. They include that microfinance, by its very nature, supports only the simplest, least-productive and lowest growth-potential activities, as Milford Bateman argues. They also include the fact that most loans are simply used for consumption, which even CGAP recognises in its attempts to redefine microfinance in terms of “financial inclusion”, ignoring the problem of these loans’ unsustainability. This is linked to the risk of overindebtedness and debt traps researched bravely by Jessica Schicks, and evidenced most gruesomely in the Indian microfinance crisis. There is also the problem of microfinance building on and employing immense power asymmetries, particularly between men and women, as Lamia Karim has shown, rather than removing these asymmetries through actual processes of empowerment. These are just a few issues.
With Hugh Sinclair along comes someone who has extensive real-life experience, a fascinating story to tell – from his original belief in microfinance to his disillusionment and ultimate heresy against it – and a knack for writing. His book, as devastating as it is entertaining to read, presents a serious challenge to large elements of the microfinance industry. Sinclair adds a new problem to the list of reasons why microfinance cannot keep its promise of poverty reduction, showing that the incentives within the microfinance industry are structured in such a way that positive developmental outcomes can – at best – occur as an accidental by-product; and mostly won’t occur at all. Read the rest of this entry »
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.
Ramesh S. Arunachalam, 2011: The Journey of Indian Micro-Finance: Lessons for the Future. Chennai: Aapti Publications.
The microfinance crisis in India which broke out in fall 2010, first imperiling numerous borrowers and then an entire industry, is the most fundamental event in the world of microfinance since the Nobel Peace Prize in 2006. In hindsight, it may even turn out to be the defining moment of microfinance history – never before has the dark side of microfinance, and the vulnerability of the industry, been so brutally exposed to a global audience.
Naturally, these events have attracted a host of opinions and analyses ranging from simply blaming the Andhra government for bringing down a healthy microfinance industry, to accusing microfinance of having become worse than loan sharks. And yet, so far, we understand very little of why India’s vast microfinance sector went so far astray. Thankfully, people like Ramesh S. Arunachalam are out to change this.
Arunachalam has earned the respect of many a reader (me too) with his candid and incredibly well-researched blogging on the Indian microfinance sector. He posts prolifically, but despite (or perhaps because of) his over 20 years of work experience in development and rural finance, he has otherwise kept a low profile. He is not an outspoken critic.
Now Ramesh Arunachalam has applied his sharp analytical approach and evident knack for writing to publishing the first book about the Indian microfinance crisis. The result is a meticulous, evidence-based piece of research which brings clarity into what so far has mostly been an interest-driven and polemical battle of explanations.
In some ways what Arunachalam has produced is, in fact, more than a book; it is a dossier of evidence and analysis of how the Indian microfinance sector functions at the deepest levels, and where its errors lie. It is a biography of an industry in identity crisis, and also a handbook on how Indian microfinance might (perhaps) still be saved. Above all, as the book’s (wonderfully illustrative) cover implies, it is a search for the Faustian, troubled soul of Indian microfinance. Read the rest of this entry »
Few documentaries in the past years can claim to have had as much impact on transnational development as The Micro Debt. Tom Heinemann‘s documentary film, produced for Norwegian public broadcasting, has contributed to a wave of critical reasoning about microfinance, but also to the axing of Grameen Bank’s founder, Muhammad Yunus. While Heinemann wasn’t out to harm Yunus, the documentary’s fallout (as well as the Indian microfinance crisis) was an opportunity for politicians in Bangladesh to remove a weakened Yunus from office.
All in all, The Micro Debt doesn’t shed a good light onto microfinance, and in return has come under fire from the microfinance community, an epistemic community which doesn’t take criticism well. Grameen Foundation in particular has mounted an organised attack on Heinemann and his film, engaging PR firm Burson-Marsteller to disseminate counter-claims and draw into question the film’s integrity. But The Micro Debt is becoming increasingly difficult to ignore or deny. It won in the “Television” category at the Avanca Film Festival in Portugal earlier this year, and may win more awards at the various other festivals internationally where it has been nominated. And it’s going on tour in the USA and Canada this month (see below).
Tom Heinemann: “The Micro Debt- a critical investigation into the dark side of Microcredit” (2010)
The real message of the film is that, after three decades, there is still no concrete evidence that microcredit actually does anything for the poor. Heinemann’s main point is that Western donors have been naive in their enthusiasm about microfinance, and his poverty-stricken interviewees testify that this might even worsen their precarious situation.
A misrepresented film
The film’s director Heinemann visited Bangladesh, the Mecca of microfinance, to check up on the successes claimed by Grameen Bank and other microfinance organisations regarding poverty alleviation. He investigated Grameen’s funding from the Norwegian government (where he uncovered financial irregularities amounting to $100 million) and spoke to numerous academic and practitioner experts. The film also shows him being denied interviews with Muhammad Yunus on several occasions.
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.
A new systematic review of the evidence on microfinance, published last week, is dynamite for the world’s most popular development policy. Madeleine Bunting of the Guardian has already referred to it as “microfinance’s sober reckoning”, likening the findings to a “hangover after a big party”. Bangladeshi news calls it a “damning report”.
What is the evidence of the impact
of microfinance on the well-being of
poor people?
Maren Duvendack, Richard Palmer-Jones, James G Copestake, Lee Hooper, Yoon Loke, Nitya Rao
August 2011
London: EPPI-Centre, Social Science Research Unit, Institute of Education, University of London.
Being co-published by the UK Department for International Development (DFID), previously a strong microfinance supporter, this “study of studies” comes from deep within the policy community – a first for a truly critical study of microfinance. The authors (economists and medical researchers mainly based at the University of East Anglia) looked at thousands of existing studies on microfinance. Their conclusions are anything but minced words:
Our report shows that almost all impact evaluations of microfinance suffer from weak methodologies and
inadequate data, thus adversely affecting the reliability of impact estimates. Nevertheless authors often draw strong policy conclusions generally supportive of microfinance. This may have lead to misconceptions about the actual effects of programmes, thereby diverting attention from the search for perhaps more pro-poor interventions and more robust evaluations. (from the Policy Brief)
So, after 30-odd years and $ hundreds of billions of lending, there still is no proof that microfinance actually works. Read the rest of this entry »
Lamia Karim, 2011: Microfinance and Its Discontents: Women in Debt in Bangladesh. Minneapolis: University of Minnesota Press.
Microfinance has built a significant part of its reputation on the assertion that small loans empower women. The assumption that every human being has entrepreneurship potential, but only lacks access to credit, underlies this “social business” intervention. The joint appeal of entrepreneurship and empowerment has cajoled many funders and donors to invest in microfinance. But critical research has been shedding doubt on the assumptions of empowerment through microfinance entrepreneurship for quite some time. Can or cannot a direct transfer of credit rouse the dormant and innate entrepreneur which lies within every woman?
Lamia Karim’s brave new book, “Microfinance and its Discontents- Women in Debt is Bangladesh”, delves deep into the social realities within which microfinance operates, in order to answer that question. As an Associate Professor of Cultural Anthropology at the University of Oregon, she performed research among the clientele of the four major microfinance NGOs in Bangladesh (Grameen Bank, Proshika, BRAC and ASA) first between 1998 and 1999, and following up in 2007.
Norms and obligations in a rural society are tilted against women, as is demonstrated by a proliferation of ethnographic accounts in Karim’s book. Take, for example, the incident of an elderly widow in Bangladesh, who was caught by her nephew on her way back home after taking a fresh loan from Grameen Bank. He pressured her into handing over the money to him because, he said, as his aunt it was her duty to help him start his business. Read the rest of this entry »
It’s great to know that people take note of the ideas we share on this blog. In April, I posted an entry introducing a paper I had recently presented in Croatia, called “Attempting the Production of Public Goods through Microfinance: The Case of Water and Sanitation“. The argument was that water and sanitation, because they have the characteristics of public goods, cannot be provided adequately via private individual credit like microfinance loans.
In a thoughtful article on microfinancefocus.com Katya Jenkins recently re-iterated this point (and quoted the paper). Her basic argument: some organisations are reporting successes, but we have good reasons to be skeptical, and it might not work in every case.
Jenkins makes one very important point at the end, which is that there may be a better case for small self-financing in water and sanitation if we were talking about community systems. Agreed. But microfinance organisations would have to adapt their business models a lot, giving out much larger loans (€ millions rather than hundreds), being far more patient with repayments (slower repayment means slower turnover means lower profits), and actually bothering to “know” their clients’ business (instead of easy and cheap “no questions asked” lending). That’s a long shot from today’s microfinance, even if a select few organisations like ProCredit have taken the step into SME finance; and probably “microfinance” would be the wrong name for it. Read the rest of this entry »
Microfinance in India is still where it was months ago – in a stalemate with the government. The crisis of microcredit in the southern Indian state of Andhra Pradesh which began last October with a rash of client suicides – we were the first to blog about this, and followed its development throughout – climaxed in a standoff in late October between the state legislature and microfinance institutions (MFIs). Mud was thrown by both sides in an intense blame-game, while actually the crisis had systemic causes rooted in weak legislation and a hyper-competitive market.
Neither side has found a way to break out. But the stalemate is becoming unstable. It is increasingly clear to MFIs and their funders that most loans in Andhra Pradesh will not be recoverable, since trust in the MFIs’ promise of being “here to stay” is dwindling, and the new legislation has rendered erstwhile coercive recovery practices impossible. On the other hand, the Andhra government cannot step down from its legislature issued under the promise of protecting the poor without losing face, and the Indian federal government has chosen to largely ignore the issue.
The Economic Times from Mumbai recently provided a thorough update on what happened in the past few months, which I’m quoting here. The growing problem is that the MFIs in Andhra Pradesh will need new capital soon in order to replace the loans they have written off, or will soon be forced to write off. Read the rest of this entry »
