You are currently browsing philmader’s articles.
Excerpt from “The Political Economy of Microfinance: Financializing Poverty”, Chapter 3, The Financialization of Poverty. (see other excerpts here)
Microfinance … performs both financial intermediation and financial innovation … it intermediates across time and space by creating entitlement relationships that reach from now into the future and from capital providers to borrowers. It innovates in generating new financial technologies which bring fresh borrowers into connection with capital-providing actors who can pursue not only financial goals, such as rapid turnover and growth of capital via above-market interest rates, but even quasi-charitable ideals.
The microfinance industry has developed (and continues to develop) technical means for channelling substantial quanta of capital directly to people living without collateral or assets at the bottom of the global income scale, technologies including group lending, social collateral, standardization and computerization, ratings of MFIs, and securitization of loan portfolios. The growth and stability of global microlending, at between 17 and 78 per cent annually during 2002–2009, and 10 per cent on average since then, both demonstrates the resulting system’s efficacy and indicates that capital-owners expect it to be durable.
Surplus extraction through microfinance, 1995–2012
Excerpt from “The Political Economy of Microfinance: Financializing Poverty”, Introduction, A Framework for Engaging Microfinance.
Concepts and Euphemisms
There is often confusion about some terms that are commonly used in discussions about microfinance. Before the substantial chapters begin, an explanation of terminological choices which affect the analysis [in this book] is essential.
Microfinance vs. microcredit – There is no consensus definition of microfinance. We may stick to a condensed version of CGAP’s definition [1], following which microfinance is “financial services for poor and low-income people, offered by different types of service providers, most of which designate themselves as microfinance institutions”.
Yet some readers might be irritated by the usage of the term “microfinance” in a book which pays relatively little attention to services such as microsavings or microinsurance. Though I differentiate clearly between microfinance and microcredit in a historical frame – where “microcredit” was the dominant term during an earlier period, while thereafter “microfinance” fell into favour – the term “microfinance” is used otherwise throughout this book to refer to the entire system, even where my analysis focuses on the credit dimension.
Why? First, even though “microfinance” is a relatively recent term – Seibel (2005) claims to have coined it in 1990 – hardly anyone now speaks of “microcredit”, let alone “microenterprise finance”, which was used mainly in the 1990s. The fact that “microfinance” is the dominant term may already be reason enough to use it. But, second, (a) microinsurance and (b) microsavings are more hype than reality. They are practically nowhere standalone businesses, while microcredit often is. Credit was, and remains, the essential element of microfinance, as the most profitable and prominent element.
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. Read the rest of this entry »
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. Read the rest of this entry »
« Riches is assumed by many to be only a quantity of coin, because the arts of getting wealth and retail trade are concerned with coin. Others maintain that coined money is a mere sham, a thing not natural, but conventional only, because, if the users substitute another commodity for it, it is worthless … and, indeed, he who is rich in coin may often be in want of necessary food. But how can that be wealth of which a man may have a great abundance and yet perish with hunger, like Midas in the fable, whose insatiable prayer turned everything that was set before him into gold? »
… thus wrote Aristotle in his book on “Politics”.
More than 2000 years on, it is far from clear that we as societies have developed an understanding of money that surpasses the conundrums the great Greek grappled with. Certainly the modern Greeks are grappling their own monetary conundrums. Only this much is clear: today money is everywhere.
Present crises and the emergence of new ideas are reshaping money’s forms, functions, politics and meanings in ways that promise to shape our societies for years to come. The conference which Axel Paul, Cornelius Moriz, and I are hosting in September at the University of Basel engages some of the problematic questions underlying attempts to obtain satisfying theories of money, as well as contemporary attempts to shape and change money. Our conference focuses on the politics of money (in the broadest sense), the different forms and functions of money, and utopias and dystopias of money. Read the rest of this entry »
One of the things that make blogs particularly interesting are series. The “series” series recommends series at related blogs. “Blue Collar Professor” Shawn Humphrey is the initiator of the student-oriented Month of Microfinance and the Two Dollar Challenge. He teaches a variety of development-related courses in most fascinating ways, among other things having his students sleep in cardboard box shelters and (for better or worse) roping them into the operations of a Honduran microfinance institution.
Usually narrated in a personal, essayistic style, Humphrey’s blog offers candid and often bravely self-critical insights into the vicissitudes of trying to “do good” and “development” – and of teaching American students how/how not to do it. Even though they’re hardly always up my alley (as with the suggestion that “doing good” is a “market”) and not always palatable, Humphrey’s musings are ever thought-provoking, sometimes philosophical, and overall highly relevant given this blog’s consistent interest in ethical questions over social justice and philanthropy. It is my pleasure therefore (as the ninth instalment in our occasional series about great series on other blogs) to introduce “Do-Goodernomics / Do’s and Don’ts of Doing Good” with this reprinting of parts of some of my favourite posts.
—
We were just finishing up our conversation with Clementina when another van full of Gringos arrived. A middle-aged man in a ball cap and shades bounded over to us. “What are you all doing here?” he asked with a hint of accusation. I introduced myself and my students. I began a review of our microfinance program. And, somewhere between “no fees” and “no penalties” he lost interest. “You know” he interrupted me. “Before we got here…,” there was a dramatic pause and a deep draw of breath “they had nothing.” He swept his hand over the small community of 30-plus families in makeshift shelters. “We built that meeting house. We built those two public restrooms. We are building that home.” He turned to place his eyes on my eyes. He removed his shades. He raised his cap. “You know without us I do not know whether or not they would have survived.”
April, apparently, is the Month of Microfinance. Prof. Shawn Humphrey, the initiator of the Month (also blogger and passionate educator), kindly allowed me to contribute a provocative analysis of the microfinance sector as serving the interests of the rich, not the poor: financialising poverty. My objective isn’t to provoke people so much as their thoughts – let’s see what happens. The Month of Microfinance is primarily aimed at students; I hope for anything other than complete silence or dogmatic indignation, and an interesting discussion.
(phil)
Last week at the International Studies Association Conference in Toronto, Marie Langevin (Ottawa) and I hosted a panel bringing together Northern and Southern perspectives on what may be termed poverty finance*. These perspectives surprisingly only rarely speak to each other, and our panel demonstrated how important and fruitful such a conversation is. Phil Cerny chaired the panel “Fringe Finance and Financial Inclusion”, and Rob Aitken (Alberta) – one of the few exceptional researchers whose work spans both the worlds of Northern and Southern poverty finance – acted as discussant of the papers.
The papers…
Two leaders of protests against microfinance institutions in Morocco have been sentenced to one year of prison each. In addition, they are to pay fines amounting to nearly 5,000 US Dollars, a judge ruled in Ouarzazate on 11 February. The defence complained about a number of irregularities during the trial.
Amina Morad and Benacer Ismaïni, activists of the Association for Defending Victims of microcredit in Ouarzazate, were given ten days to submit appeals to the court. The two activists had earlier been found not guilty in a previous trial, but were taken to court again by INMAA, a microfinance association linked to PlaNet Finance.
governancexborders.com 