It’s lingered quite a while in the pipeline. My book The Political Economy of Microfinance: Financializing Poverty is finally due to hit shelves in June – so says the publisher. This book makes the enigmatic microfinance sector more understanable by tracing its evolution and showing what it is today: a leading edge of financialisation where the world of global poverty meets the world of global finance.
The book is the product of several years of research at the Max Planck Institute for the Study of Societies in Cologne. In 2008, I set out to investigate the connection of microfinance with water and sanitation, which brought me to southern India. Then the Andhra Pradesh microfinance crisis happened, and this eye-opener led me to re-examine microfinance more broadly and fundamentally, critically evaluate it as a highly remunerative but crisis-prone financial system (no longer a development intervention), and challenge its most basic premise: that poverty is a problem of finance.
I’m already excited about whatever reactions (critical, or otherwise) may follow when my ideas, analysis and critique finally reach a broader audience. To give some indications of what the book says and does, I’m posting excerpts from The Political Economy of Microfinance here over the next few months.
Here’s the first.
“The Political Economy of Microfinance: Financialising Poverty”, Chapter 1 (A Framework for Engaging Microfinance)
Contemporary capitalism is a financialized capitalism, and microfinance is its response to poverty. Microfinance taps into the capital markets and uses philanthropic support to build banks because – its proponents argue and its supporters believe – these banks help to build a better world. Far from being unimportant or eccentric elements of global finance, the multitudes of tiny transactions that are organized in the microfinance system stand paradigmatically for the hopes and contradictions of the present, finance-based economic order.
That a financial subindustry could come to stand for such lofty aims as ending poverty and empowering women is a phenomenon to be explained, and questioned. But microfinance is more than mere lofty aims. It also engenders concrete practices which shape people’s lives in different ways, generating new narratives, roles, risks and capital flows at local and global scales. Microfinance today is increasingly a financial system in its own right, which uses an array of different methods to channel return-seeking capital into Asian slums, African villages and Latin American favelas, bringing them closer to the core of contemporary capitalist activity. To explain how this could arise, and what it means, is the challenge of this book.
According to the father figure of the sector, Muhammad Yunus, microfinance should confine poverty to “poverty museums” within two generations (Yunus 1997). Only time will tell. But meanwhile, a significant and growing body of literature has controversially engaged with how microfinance activities impact the target populations – including, among others, Armendáriz and Morduch (2005), Dichter and Harper (2007), Collins et al. (2009), Bateman (2010; 2011a), Duvendack et al. (2011b), Karim (2011), Roodman (2012a), Klas and Mader (2014) and Bateman and Maclean (forthcoming) – and reached vastly divergent conclusions. For some, microfinance sanguinely “presents a series of exciting possibilities for extending markets, reducing poverty, and fostering social change” (Armendáriz and Morduch 2005: 3); for others, because of the innate incompatibility of these goals, “[p]ut simply, microfinance does not work” (Bateman 2010: 1).
In the light of this profusion and confusion, this book’s goal is to move forward the debate which has very often revolved around the question “Does microfinance work?” by asking: “What does microfinance work at – and how?” In doing so, this book examines contemporary microfinance through the lens of financialization, and it also seeks to understand financialization through microfinance. By proposing to analyse the transnational political economy of microfinance as financializing poverty, this work connects with and builds upon foregoing critical analyses, particularly Weber’s (2006b; 2010) explication of microcredit as a political tool for neoliberal reform, Elyachar’s (2005) analysis of “markets of dispossession” and A. Roy’s (2010) conceptualization of “poverty capital”. As these authors have established, microfinance has been part of a profound transformation of the logics of development since the 1980s, both materially and ideologically intertwining with the expansionary logics of financial markets.
My argument that contemporary microfinance is in this way financializing poverty represents a counterpart to David Roodman’s (2012a: 266) conclusion that “the greatest strength of microfinance has been in building industries that enrich the fabric of nations” – Roodman means financial industries. Indeed, the strength of microfinance in building a financial industry which plays “Banker to the Poor” (Yunus 2003), unlike many other strengths that are claimed for it, is undeniable, albeit all too rarely recognized for what it is. But the portrayal of this financial industry-building as an indubitable gain for the poor – or the “fabric” of their “nations” – can only rest on a belief “that sustainably extending the financial system to poor people is development, appropriately defined” (Roodman 2012a: 266). The result of this “sustainable” extension of the financial system, I show, is that through such processes as the successive commercialization and deepening union with mainstream financial markets, and the expansion of microfinance into new fields such as credit for public goods, the system of microfinance has expanded the frontier of finance and opened up new terrains for capital in its restless and unrelenting search for opportunities to generate and extract surplus. Does this constitute development? Perhaps, but a thoroughly financialized capitalist variant of development.
This functionality has grown all the more acute with the ongoing financial calamities after 2008 revealing the insecurities of core financial markets and sparking a quest among capital-holders for alternative sites of financial accumulation. An “impact investing” partner at PricewaterhouseCoopers answered the question “What is the main problem with microfinance?” with: “there is a lot of money but very few organisations capable of absorbing it … microfinance companies need to restructure to be capable of absorbing new funds” (iD4D 2012). Capital is in restless migration in search of fertile new lands, and the still-growing economies of the global South – where business guru C.K. Prahalad (2004) prophesied a “fortune at the bottom of the pyramid” – in particular have been sighted as attractive new frontiers.
Brazen financial frontiersmen (and some women) are rushing in to seek the fortunes which reportedly lie in the social economies of the global poor. With the expanding microfinance sector not only are the poor increasingly included in the financial market, but also the institutions of financial capital which supply the capital for microfinance are increasingly willing and able to include the poor as their subjects. At the same time, microcredit still appears to many to be a feminist, pro-poor, ostensibly social aspect of the economy, “defusing”, as Nancy Fraser (2009) argues, radical feminist resistance to neoliberalism while actively fuelling what Milford Bateman (2010) terms the “destructive rise of local neoliberalism”.
Microfinance promises a “win-win potion for development and capital” (Fernando 2006b: 194) built on an imagery of indigenous solidarity, individual agency and entrepreneurial (feminine) creative potency, while inseparably expanding the pool of investable assets. Its utopianism extends to proposing a resolution of multiple dichotomies: seemingly unproblematically uniting philanthropy with business, charity with self-reliance, financialization with democratization, even bringing NGOs and banks into symbiosis, and apolitically resolving the differences between capital and labour through credit. The consequence, as Christa Wichterich (2012: 407) says, given the majority-female borrowers, is nothing less than “a feminization of financialization of village life”, and “a feminization of indebtedness”. With this, microfinance is not only a small part of financialization, but a leading edge where capital confronts potentially vast opportunities for accumulation by mobilizing and harnessing the labour power of the poor together with the developmental imaginaries of the rich into the financial system.