The Nobel Peace Prize awarded to Muhammad Yunus and the Grameen Bank in 2006 went practically unquestioned. But since then, particularly over the last years, a public pro-microfinance/anti-microfinance debate has taken a clear shape with well-known lines of argument running both-ways. Many studies have asked: “Does microfinance work?”. And some have more pointedly asked: “Why doesn’t microfinance work?“.
New questions are needed if new answers are to be generated. The Political Economy of Microfinance: Financializing Poverty offers both. Starting from the question “What does microfinance work at – and how?”, it offers new insights into which have particular significance in light of the continually unresolved issues around poverty impact. More than 35 years into the microfinance experiment, the fact is we still don’t know whether microfinance works at reducing poverty – and there are serious reasons to doubt that it does. What we do know (or can know), however, the book argues, is that microfinance works at financialising poverty.
Microfinance turns poverty into a problem of finance. It makes global povery the basis for new business opportunities at the frontier of capital accumulation; it brings financial markets to the poor and the poor into financial markets. Global poverty becomes an exciting new frontier for transnational finance. This financialisation of poverty takes different forms, discussed in the book, from the everyday extraction of value via interest, to donors pushing debt for access to public goods, to new disciplinary and calculatory practices instilled through credit, a growing list of microfinancial crises, and a fundamental reconceptualisation of poor people as entrepreneurial financial managers. In short, what microfinance works at is not so much to directly impact global poverty, but to reconfigure it to match the reality of an increasingly financialised global capitalism.
This book is the result of a research project started in 2008, culminating in a PhD thesis defended in 2012, which won two major prizes in 2013. As a result of this long process, some of the work in progress leading up to the book has already seen the light of day. Many thoughts and analyses were first published on this blog. A 2011 Discussion Paper highlighted the pitfalls of microfinance for water and sanitation. A 2013 article in Strategic Change analysed and explained the Andhra/Indian microfinance crisis. A 2014 article in the Asian Studies Review placed microfinance in the context of global financialisation. And this working paper presents the key argument how microfinance works to financialise poverty through narratives, power structures, and material transfers (including calculations of how much value is transferred from borrowers to the financial industry).
All of these ideas, and more, now finally come together as a coherent analysis in The Political Economy of Microfinance. The central argument of this book – that microfinance works to financialise poverty, and thereby is a powerful political-economic force – adds a forceful and innovative critique to the existing literature on microfinance, which (I hope) may help to reshape the policy discourse around microfinance by clarifying what microfinance is today, and how it operates: increasingly an appendage and frontier of global finance, not a global development policy.
- Chapter 1 (most of which can be read here) succinctly reviews the economic and gender impacts of microfinance, highlights the ambiguous results, offers a syncretic understanding of financialisation, and proposes to ask what microfinance works at and how.
- Chapter 2 offers a genealogical account of the idea and practice of microfinance, highlighting its origins in colonial credit experiments, and showing how its emergence was catalysed by weakened states, neoliberal structural adjustment and a global search for market-friendly solutions to poverty. Contrary to popular accounts, instead of being hijacked by profiteers, the microfinance sector as we know it today (with its profits, excesses, and financial logics) was built through political planning.
- Chapter 3 argues that the keys to the political economy of microfinance lie in understanding three dimensions: (1) positive mobilising narratives which depict poor people as skilful financial managers and credit as morally superior to redistribution; (2) inbuilt power structures which generate governmentality that works in the interest of capital accumulation; and (3) new materialities wherein capital-labour relationships allow significant material transfers to be made from poor borrowers into the financial system.
- Chapter 4 examines projects linking loans with public goods such as water and sanitation, and evaluates cases in Vietnam and India, finding that such projects often fail due to their inequitable structures, unsuited social values, failure to improve public capacity, and spontaneous political opposition. Nonetheless, they threaten to shift the discourse and privatise public resources through the back door.
- Chapter 5 examines the Andhra Pradesh crisis of 2010, the most dramatic microfinance crisis to date. It draws upon a Minskyan framework to explain the mechanisms of endogenous financial instability-creation which converged with an unstable political economy in India to generate the crisis.
- Chapter 6 highlights the broader implications for the study of financialisation and suggests that, given its ambiguous and contradictory effects, a deeply critical re-evaluation of microfinance is necessary.
The Political Economy of Microfinance: Financializing Poverty is available now from all major on-line bookstores as well as select offline stores.