Excerpt from “The Political Economy of Microfinance: Financializing Poverty”, Chapter 3, The Financialization of Poverty.
The expansion of microfinance as part of the global process of financialization has hinged on mobilizing narratives which act as affirmative and prohibitive stories about what finance can and should do, about what is right and wrong, and about where and how finance should operate. As Akerlof and Shiller (2009: 51, 55-56) explain, “the human mind is built to think in terms of narratives”, particularly when it comes to “the expectations for personal success in business, the success of entrepreneurial ventures, and for payoffs to human capital” which underlie financial decisions.
Such narratives which give meaning to finance historically have featured centrally in processes of financial change. As Calder (1999) shows, the acceptance of debt into the household as part of a “normal” and “decent” lifestyle required an active redefinition of what it meant to use credit – the emergence of a new, positive narrative. Similarly, Harrington (2008) shows how during the dot.com bubble, people came together in groups to create, affirm and celebrate new and desirable identities as “investors”, enacting new narratives of social rise and participation through finance. Following de Goede (2005), more fundamentally, Western finance has always followed strongly gendered narratives which gave meaning to financial practices by aligning them with desirable or less desirable identities.
While stories and mobilizing narratives always matter in finance, in microfinance they are even more salient. Microfinance is anchored in the contemporary public imaginary through certain narratives of empowerment through finance (cf. Elyachar 2012) and of poverty as a problem of finance. Credit (or its inverse – debt) is represented and understood as a force for liberating women from traditional gender identities, allowing innate entrepreneurs to prosper, or helping poor people to manage their difficult economic lives better – notions which grant finance the power to develop people. The ubiquitous client success stories in donor organizations and MFIs’ publications, as well as countless media exposés, are key building blocks of the narratives.
The client story genre overproportionately tells women’s stories; given that approximately one-quarter of borrowers are men. Usually by reporting about a family business, the stories focus on the woman’s success with the loan and her business, blinkering the often more complicated gendered reality and hiding women’s “positional vulnerability” (Rahman 1999: 69). These stories of success and minor economic miracles each are a building block for the larger narrative of microfinance as helping poor people (women) to individually improve their lives, and those of their families, through well-intentioned debt.
The mobilizing aspect of this empowerment narrative lies in an invitation to the reader to become part of the narrative by supporting microfinance, which in turn allows Westerners to spin their own narratives about their lending activities (Black 2013). Very explicitly, ACCION’s client stories all come accompanied with the note: “For more information or to make a donation online, please visit http://www.accion.org and click on ‘Donate Now’ on the home page.”
However, there is also a more fundamental narrative (below the “empowerment” level) that is woven into the fabric of the microfinance construct: social problems are problems of finance. Microfinance makes poverty in the global South comprehensible to the (primarily Northern) middle and upper classes by proposing a solution on terms that they can understand and identify with. “We” do not know Mary, Rukia, Nilufa or Karoline (from the client stories), and we have no meaningful comprehension of the realities of their lives, but we are invited to imagine their situations through stories of small successful businesses that are crafted with finance.
When protagonists such as Muhammad Yunus preach that the poor need access to finance in order to fulfil their potential, this evidently rings instinctively true to the Western middle and upper classes for whom, as the financialization literature shows, economic and social success is increasingly determined by their success or failure at managing finance. Social problems appear as mere problems of individual access to finance, not politics, economic justice or collective action. While their circumstances and constraints remain fundamentally different, the rich and the poor are seemingly aligned in the microfinance narrative through their shared identity as subjects of finance.
The particularly vivid fascination among some of the wealthiest IT entrepreneurs showcases the power of these narratives of empowerment through finance and of poverty as a problem of finance. Bill and Melinda Gates, Michael Dell and Pierre Omidyar can all evidently align their own biographies with notions of an entrepreneurial escape from poverty in the global South. At $133 million, the Gates Foundation’s expenditure on “Financial Services for the Poor” in 2009 was the second-largest among the spending categories in its largest programme, “Global Development”. In 2005, eBay founder Pierre Omidyar donated $100 million to his alma mater, Tufts University, conditional on it being invested exclusively in commercial microfinance.
The freedom and desire of such wealthy individuals to reshape social relations and behaviours with credit elsewhere, in accordance with their personal values, also extends to many Western middle-class people. The roughly 1.6 million users of the online microlending platform Kiva seek to “implement their moral visions of ‘good society’ through more or less institutionalized forms of philanthropic giving”, as Bajde (2011: 6) explains (cf. Bajde 2013). … But differently from charitable donations, Kiva lenders are entitled to a financial return (loan repayment but no interest), as well as ongoing financial information flows about borrowers’ repayments. This allows – as Kiva co-founder Jessica Jackley puts it – “the average individual to feel like a mini-Bill Gates by building a portfolio of investments in businesses around the globe”. The would-be small-scale philanthropist assumes the new identity of Kiva investor, the would-be recipient of generosity the identity of the investee.
Recalling Zelizer’s (1997) finding that what constitutes legitimate “poor people’s money” has been a historically shifting category, we may note that today’s microfinance narrative proposes a morally uplifting type of credit as the new “good” money for the poor, as opposed to the “dole”, whose legitimation over 100 years ago Zelizer traced. In this sense it appears almost as if contemporary capitalist societies have regressed to a Victorian morality where they suspect “easy” or “free” money to be inherently corrupting, while credit – coming at the price of interest, and bringing discipline – is seen as enabling a decent, moral life. Without this moralization of credit it would be hard to comprehend why so many charitable organizations have gifted large sums to microfinance institutions. For instance, Oxfam gave $6 million to various MFIs in 2006 (MIX 2010b) instead of rendering money or services to poor people directly. In 2009 a total of nearly $2.7 billion was donated to MFIs as cross-border grants (El-Zoghbi et al. 2011: 10).
For other capital providers who are interested only in investing, rather than performing charity – for instance, using microfinance investments to diversify their portfolio or hedge against risk (Krauss and Walter 2009) – microfinance may well serve a strictly financial purpose. In spite of recent crises, which dampened returns in some markets, microfinance investments have overall appeared highly attractive, thanks to the unparalleled reliability of loan repayments. As enthusiasts put it: “The Poor Always Pay Back” (Dowla and Barua 2006). 95–99 per cent loan recovery rates paired with high interest rates have proposed microfinance securities and bonds as (at least potentially) a highly attractive investment for the financial mainstream. Microfinance securities and bond issues are increasingly one financial asset among others.
Yet, importantly, microfinance additionally appeals to the imagination and self-esteem of even the most return-oriented investor by promising results which few other investments can deliver: positive social change. MFIs’ financial attractiveness is buttressed by the presentation of microfinance as a “social investment” that generates additional value under a “double bottom line” of social and financial returns.
As Beckert (2011) shows, many economic acts would be impossible without an element of “fictionality” which allows actors to imagine the future consequences of their actions. “These fictional depictions take narrative form … Financial markets are especially prone to giving rise to such stories about events in the future” (Beckert 2011: 7–8). Under conditions of uncertainty, investors must base their expectations on stories or dreams about what the future would be like, if only they gave their money, such that some markets can even represent “markets for dreams” (Lutter 2010).
Beckert’s (2010) conception of “imaginative value”, built through “storytelling” about goods (Bogdanova 2013), helps to explain the appeal of microfinance in that even the return-seeking investor is rewarded today, by already being able to “consume” a sensation of having done “good”, while expectinfg financial return tomorrow. The “imagined future” (Beckert 2011) which the investors value in microfinance strongly hinges on morally mobilizing narratives. They cannot know with any certainty whether the activities that they fund will actually create successes in faraway villages or slums, but they can imagine these successes thanks to stories about the miraculous effects of microloans.
Mader, Philip: The Political Economy of Microfinance: Financializing Poverty. London: Palgrave-Macmillan, June 2015.