Excerpt from “The Political Economy of Microfinance: Financializing Poverty”, Chapter 3, The Financialization of Poverty.
Reinforcement for the microfinance narratives of empowerment through finance, and of poverty being a problem of finance [see the last posted excerpt], comes from a vision of poor people as being inherently (or even exceptionally) financially minded subjects. Portfolios of the Poor, written by a team of practitioners and academics who tracked borrowers’ financial lives via financial diaries, has emerged as the key text of the ascendant “financial inclusion” paradigm. Engagingly written but not addressed to very broad audiences, it chiefly provides legitimation among development practitioners, bankers and microfinance experts for their visions of helping poor people to master their lives via financial services. The poor are depicted as Third-World “portfolio managers” (Collins et al. 2009: 238), as savvy and skilful as their Wall Street counterparts, and equally in need of finance. Portfolios effectively portrays the denizens of megacity slums and remote villages, to follow John Steinbeck, as “temporarily embarrassed millionaires” who have merely lost their bank accounts.¹
Underlying the claims made by Portfolios’ authors is the assumption that low-income individuals in the global South are guided by the cognitive framework of the purest specimen of Homo oeconomicus – the free investor. The authors interpreted nearly every financial decision inscribed in their subjects’ financial diaries as rational and optimal, and thereby ultimately deduced that MFIs should feed poor people’s ubiquitous credit needs for everything, not just microentrepreneurship.
Using a loan at 36 per cent interest to buy gold jewellery, as one diarist did, for instance was a sensible choice because “The fact that the loan could be repaid in a series of small weekly payments made it manageable … Price was only one aspect of the loan, less important than the repayment schedule that matched instalments to the household’s cash flow” (Collins et al. 2009: 23). That this diarist had to pay a 36 per cent surcharge for her “investment”, relative to what others would have had to pay, was a non-issue.
The authors of Portfolios concluded from their study of 250 households that
money management is, for the poor, a fundamental and well-understood part of everyday life. It is a key factor in determining the level of success that poor households enjoy in improving their own lives … It was, surprisingly, the tools of corporate finance – balance sheets and cash-flow statements – that offered the structure with which we could begin to understand what it takes, day by day, for poor households to live on so little. (Collins et al. 2009: 3, 5; emphasis added)
This was surprising indeed, because what these economists observed were not actually portfolios but the budgets of poor people.
That poor people must budget skilfully should surprise only observers with Victorian-era assumptions about the poor as foolish spendthrifts. Furthermore, skilful budgeting is far from portfolio management. Poor people must square their low incomes with low expenses and with their desire to save. This is an act of budgeting, of “juggling” with money and debt, of matching incomes and obligations in order to sustain financially (cf. Guérin et al. 2014).
Portfolio management, contrarily, is the voluntary assignment of capital to different asset classes with various expected returns and associated risks – not the act of making ends meet, no matter how creatively. Portfolio theory since Markowitz has been about matching risks with rewards, “realizing the largest possible gain with exposure to the least possible risk” (Bernstein 1992: 44) by a fictional “free investor” who seeks an optimal allocation of capital. Collins et al. do acknowledge that most risks that are faced by poor people are no matter of choice but inescapable realities. Nonetheless, they chose to evaluate their subjects’ money matters using a theoretical framework that was designed for risk-pricing capital assets under hypothetical free-market conditions.
Even more bizarrely, the book takes into consideration only cash flows and stocks, failing to study the non-monetized transfers and exchanges which are essential to the economic lives of the poor. This is more a scientific failure of omission than simply a limitation of their study. The authors only explain: “because our story is focused on how poor households manage money, we have focused our discussion only on those transactions where cash was involved” (Collins et al. 2009: 11). Why they would do this – especially after noting that physical assets actually made up the largest share of their diarists’ possessions – can only be understood if their original aim, rather than an accidental outcome of the book, was to convince policy-makers and investors of a need for microfinance.
The book’s weightiest contribution to the narrative of poverty as a problem of finance, and its most evident fallacy, is its conclusion: “Not having enough money is bad enough. Not being able to manage whatever money you have is worse” (Collins et al. 2009: 184). Ergo, poverty-as-a-lack-of-money is pretty bad, but poverty-as-a-lack-of-financial-tools is worse. Therefore the poor need more financial tools. This logic is powerful but patently false, as can be demonstrated by formulating its (true) inverse: not being able to manage whatever money you have is bad enough. Not having enough money to manage is worse. With this erroneous syllogism, Portfolios illuminates how the ascendant “financial inclusion” paradigm differs from the original entrepreneurship microfinance concept: the aim is no longer to increase the resources that are available to the poor but, by drawing them into the formal financial market, simply to improve the efficiency with which they marshal their meagre resources.
The “financial inclusion” discourse, as we see, is based on mobilizing narratives which present new finance as a solution to old problems. The darker side of the narratives is revealed in an explanation given by Muhammad Yunus for how he originally conceived microfinance:
I never intended to become a moneylender. I had no intention of lending money to anyone. All I really wanted was to solve an immediate problem … My work became a struggle to show that the financial untouchables are actually touchable, even huggable. To my great surprise, the repayment of loans by people who borrow without collateral has proven to be much better than those whose borrowings are secured by assets. Indeed, more than 98 per cent of our loans are repaid. The poor know that this credit is their only opportunity to break out of poverty. They do not have any cushion whatsoever to fall back on. If they fall afoul of this one loan, they will have lost their one and only chance to get out of the rut. (Yunus 2003: 58, emphasis added)
In Yunus’ account, utter pragmatism sits side by side with polarizing, even threatening, rhetoric. The Grameen founder claims to have inadvertently stumbled into and transformed the age-old practice of moneylending, only to subsequently present his variation on moneylending as the “only opportunity to break out of poverty”. Akin to Margaret Thatcher’s TINA, for Yunus and his disciples “There Is No Alternative” to the financial market way out of poverty.
Rather than questioning and challenging the lack of options open to poor people in Bangladesh and elsewhere, Yunus suggests that the failure to take a loan and employ it usefully revokes one’s right to a better life. Thus the champions of microfinance themselves underscore what Elyachar (2005: 217) signifies with her quip that “empowerment teaches us to blame victims for their problems”. The narratives grant lenders such as Grameen Bank great moral and practical power; the polarizing rhetoric about “financial untouchables” and “huggable” poor seeks to stymie opposition – after all, who would discriminate against the poor like outcasts?
1. Weigel (2011) cites Steinbeck: “Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.” The quote is possibly apocryphal, but Steinbeck (2003) did write: “I guess the trouble was that we didn’t have any self-admitted proletarians. Everyone was a temporarily embarrassed capitalist.”
Mader, Philip: The Political Economy of Microfinance: Financializing Poverty. London: Palgrave-Macmillan, June 2015.