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Book review:
Milford Bateman, 2010: Why Doesn’t Microfinance Work? The destructive rise of local neoliberalism. London: Zed Books.
Since the inception of this blog, one issue which has been critically explored again and again is the dominant position of microfinance in the field of international development. For instance, a series of blog posts in early 2009 was aimed at unmasking the popular myths spun by microcredit’s advocates, from presumed gender empowerment to the purported win-win situation in which profits would go hand-in-hand with social impacts. More recently, we followed how, in the wake of two high-profile randomised studies which failed to show increases in poor people’s income, even some mainstream media have begun taking a more critical view of microfinance.
Indeed, 2009 and 2010 may have brought some disillusionment to many who believed that small loans would create “a world without poverty”. But still the microfinance industry and its epistemic community remain fiercely defensive of the reputation as a solution to poverty; still the international donor community unquestioningly pours money into a concept with much promise but little proof; and still Muhammad Yunus’ award shelf continues to fill up with precious metal as the hype around microfinance continues to enthrall the socially-concerned masses.
A few full-fledged books critiquing present microfinance practices may have been published to date, but these have addressed themselves mainly to microfinance insiders and development experts. Milford Bateman’s brand-new book (released this summer) however is the first critical book capable of crossing the border between academia and the lay world; it reaches out to convince a wider audience of questioning those accepted wisdoms which underlie the first big development hype of the 21st century. 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. This time, Phil takes up the initiative and introduces a series he has particularly enjoyed: the book chapter releases on David Roodman’s Microfinance Open Book Blog.
Okay, maybe technically this isn’t really a series. But since February 2009, when David Roodman (who is a senior fellow at the Center for Global Development CGDEV and also the father of the fascinating “Committment to Development Index”, CDI) began sharing the progress he was making on his new book, his blog has become one of the most prolific and insightful blogs about microfinance. And on that blog, the central recurring theme has been the book chapters which David has incrementally released.
David’s book (which, it seems, is now finished to a draft level) was presented via occasional single-chapter releases. These frequently produced interesting discussions among the blog’s growing readership, which notably includes an array of high-profile development intelligentsia members like Harvard Professor Lant Pritchett, senior cooperative banking expert Hans-Dieter Seibel, and development über-academic Bill Easterly.
Perhaps it is less the book and more the wide range of controversial issues covered – from double-borrowing and microfinance bubbles to the heavy-hitting disappointing RCT impact studies (and the industry’s disappointing reaction to them) – processed through Roodman’s brilliant analysis, which have led his readership to read his take again and again.
Most laudably, this blog also gives outspoken microfinance critics like Milford Bateman an open forum to engage in cultured discussion with microfinance’s supporter community away from the less tolerant industry-operated “discussion” forums. I too don’t see eye-to-eye with David on many issues concerning microfinance, and would often consider a more critical tone to be justified. But his blog and the upcoming book definitely provide some of the sharpest and most thoughtful discussions of those questions which currently shake and shape the microfinance industry (against its will), and make microfinance the controversial subject which it is. Big props.
(phil)
“Water, like oil, is finite. There is only so much ocean saltwater, glacier freshwater and water in the air, while global consumption is growing twice as fast as the world’s population.”
It would be hard to believe that anyone could view these facts as a positive thing. But add the story of Warren Buffet, former world’s richest man, buying the water treatment company Nalco for US$ 3.7 billion through his investment firm Berkshire Hathaway, and suddenly you get that “investing in water is an untapped opportunity”. So argues journalist Tatiana Serafin on mint.com in an article entitled “Invest Like a Billionaire: Water Is The New Gold“.
Serafin considers publicly traded water utilities firms a bargain, quoting another author as saying “utilities are cheaper than they have ever been”. Her conclusion is, “invest like Buffet”, even if you’re on a budget.
One could also think that viewing the so-called global water crisis – which I recently wrote about here on World Water Day – as a hot investment opportunity would require the shrewd and narrow-minded perspective of the investment banking profession. Yet even the Netherlands-based IRC International Water and Sanitation Centre, an important resource centre in the water and development sphere, and at least not officially posing as a private sector think-tank, apparently agrees that water is “the new gold”. On its water and sanitation financing blog WASH news finance, the article quoted above was merely copied and uncritically reproduced.
This, among other cases from the NGO sector, shows how strategies of privatisation and commodification still heavily dominate development politics where they pertain to water. Though less aggressively and more subtly pursued now than the IFI-driven Structural Adjustment Programs and their successors, PRSPs, the new-millennium logic of privatisation is promoted instead by smaller, ostensibly unconnected agencies and through new, seemingly innovative means such as decentralisation, downscaling or microfinance – essentially a return to the days before the developmentalist state. Through blogs and social networks, the politics of liberalisation have adopted a postmodern aesthetic – as always arguing in the name of the poor – complete with Internet videos in HD.
Today is World Water Day; this year operating under the heading “Clean Water for a Healthy World”. Every year since 1995, March 22 has been dedicated to “focusing attention on the importance of freshwater and advocating for the sustainable management of freshwater resources“.
The 2010 events campaign focuses specifically on raising awareness of the importance of water quality for health and human well-being, and the importance of sound water management for preventing pollution.
While that means that this year the World Water Day has no specific focus on the developing world, a global view onto water problems always naturally draws attention to the specific the problems of the developing world, where not only most of the people lacking access to safe drinking water live, where desertification and pollution are worst, and where water-borne diseases are most prevalent – just to give a few examples – but also the technical and financial means for dealing with the causes and consequences of the “water crisis” /1/ are slimmest.
In 2003, the United Nations Economic and Social Council codified a Human Right to Water in its General Comment No. 15, based on the interpretation of the pre-existing International Covenant on Economic, Social and Cultural Rights, which stated:
The human right to water entitles everyone to sufficient, safe, acceptable, physically accessible and affordable water for personal and domestic uses. An adequate amount of safe water is necessary to prevent death from dehydration, to reduce the risk of water-related disease and to provide for consumption, cooking, personal and domestic hygienic requirements.
Yet, this right remains unclaimable in many poor countries, both as a result of the failure of the international community to support the necessary steps financially, and because of a competing paradigm of “full cost recovery”. This is reason enough to have a cursory look today at the transnational governance and provision systems of water and sanitation for the poor.
The microfinance industry, which once set out to protect the poor from extortionate moneylenders, may depend on those same moneylenders for its business success; and these moneylenders in turn may be profiting from microfinance. So reports the Wall Street Journal today.
Ketaki Gokhale is a Stanford University graduate student currently working for the WSJ as this year’s Daniel Pearl Memorial Journalism Intern. Earlier this year Gokhale reported on credit bubble tendencies brewing in the microfinance sector in India, an article which provoked controversy and some indignation among the microfinance industry and its advocates.
One of Gokhale’s interviewees reported being overwhelmed by the sudden and forceful supply of credit in her neighbourhood. “Suddenly, in the shantytown where she lives, lots of people wanted to loan her money. She borrowed $125 to invest in her husband’s vegetable cart. Then she borrowed more.” The lady descended into a borrowing binge, at the end of which she even bought a television. She was forced to sell virtually all of her assets and still remained in debt worth around a quarter of her annual income.
Refinancing microfinance loans through the grey market
Gokhale has now followed up her earlier investigation into the dark side of microfinance and uncovered structural complementarities and interdependencies between the microfinance business and local moneylenders. The irony and sadness of the story is that microfinance originally set out to put these same moneylenders and their practices of extortion out of business by offering the poor loans which they could afford. Moneylenders in India are reported to charge interest rates even beyond 1000 per cent annually, leading to debt bondage and other existential problems for the poor.
The entry of microfinance banks into the market may have pushed down the interest rates of some moneylenders, but paradoxically the moneylending business appears to be growing. As Gokhale reports, more than 80% of registered moneylenders in Mahabubnagar started their businesses after the year 2000, which coincides with the phenomenal bout of growth in microfinance in India in the past decade.
It appears that many microdebtors cannot afford to comply with the extremely rigid repayment schedules of microfinance banks, so they must turn to moneylenders, thereby re-financing their loans through the grey market – the market which microfinance sought to protect them from. Read the rest of this entry »
Thursday, October 15th 2009 was a day of good news. The FT print version headlined “JP Morgan profits lift the Dow”, as JPM posted a net income of 3.6 billion US $ in the three months leading up to September (online article of similar contents). Goldman Sachs posted earnings of nearly as much, as the DOW soared above 10,000.
A good time to be unemployed (for the wealthy)
Meanwhile, the preparatory discussions for Germany’s new coalition government brought an improvement for Germany’s unemployed. If the new government goes forth with its plans, unemployed people will be allowed up to 750 Euros savings per year of age (up from currently only 250) – that means, for instance, if you’re 30 years old and lose your job, you’ll be allowed 22,500 Euros on your bank account and still receive minimum social security cheques (Hartz IV). Sadly, however, according to local radio station WDR5 last night, only 0.2 per cent of currently unemployed people will benefit. It seems appropriate, therefore, to call the move mere “social cosmetics”, as the Frankfurter Rundschau did.
Probably the best financial news of the day was that the top 23 financial institutions in the USA (alone) will pay out 140 billion US $ in bonuses this year, as the Wall Street Jounal reported – the biggest round of bonuses ever. And that’s among a significantly reduced population of bankers compared to 2007. Goldman Sachs is paying out 743,112 Dollars per employee, on average.
Thursday, October 15th 2009 was also a day of bad news, however, though reported by fewer. At least, the left-leaning German newspaper “die tageszeitung” (taz) framed the good news above in a shocking fashion by underscoring it with pictures of starving Ethiopians. Read the rest of this entry »
This entry is part two of a mini-series dedicated to the fascinating institutional landscape found on the Eastern edge of the European Union. It deals with the dearth of the public sector and the rejuvenation of religion.
Someone must have built all this infrastructure which now lies decaying throughout Eastern Europe. It bears the signs of more than twenty years of decay, so almost certainly it was the governments of the Warsaw Pact which paved the roads to the majority of villages, laid tracks between cities, erected gargantuan grain silos and stamped huge factory complexes out of the ground.
Yet many of today’s Eastern European states have too few resources (or hardly any at all) to provide the public infrastructure necessary for success in the game of capitalist competition. And, as regards the private sector, the current mode of production knows no place for means of production accumulated under the Five-Year-Plans of yesteryear.
The new European Union member states Romania and Bulgaria show many signs that transnational institutions can catalyse the development of infrastructure; while Ukraine and Moldova demonstrate the counterpoint of the damage that lack of investment by the public sector can do. All the while, across the border between the two worlds – at least that is how the border between EU and non-EU can feel, and is locally perceived – the church consoles the post-socialist sorrows of the masses. Read the rest of this entry »
When we write about such phenomena as governance across borders, our conceptualisation always hinges on dividing lines, those borders which governance may span. Especially for a research group working on transnational institutions, it’s important to contemplate: What do borders really mean?
The reality of borders takes on a wholly different dimension when leaving the comfort of Western Europe, with its checkpoint-free border crossings. Travelling along Europe’s (still somewhat wild) Eastern frontier, the significance of national boundaries and the institutions that sometimes do, sometimes don’t span them, is illuminated starkly, highlighting what one takes for granted.
Here, I’ll be sharing some – hopefully not too wanton – snapshots and insights into the fascinating institutional landscape which I encountered during some recent travels. Read the rest of this entry »
The diamond trade hasn’t exactly enjoyed a great reputation over the past years. Not least thanks to Hollywood movies like Blood Diamond, these gems are inextricably percieved as covered with the blood spilt in civil wars all over Africa.
But diamonds are also a key export of many poor African nations.
Despite some initial progress being achieved by the Kimberly Process certification scheme, diamonds’ persisting bloody reputation isn’t exactly undeserved. Many still find their way into the world market, dominated by De Beers, from appalling sources.
Groups like Amnesty International and One Sky have criticised the certification scheme as lacking impartial, obligatory monitoring. Global Witness, an NGO specialising on the link between natural resource exploitation and violence reported the scheme to be failing to address issues of non-compliance, smuggling, money laundering and human rights: “The clock is running out on Kimberley Process credibility.”
Other problems include that diamonds from conflict-ridden Zimbabwe are still considered legitimate under the Kimberly Process; and the mind boggles as to what real effects membership of countries like the Democratic Republic of Congo may have on the ground. Several civil wars currently rage within the Congo’s boundaries.
Small loans for women, often organised in groups, to build their own businesses – that’s a standard model of microfinance, and many microfinance organisations are focused on women. In fact, it used to be the case that 95 percent of Grameen Bank’s borrowers were female.
Through the establishment of self-owned businesses which provide an independent income stream, it is theorised (or often simply claimed) that women will be empowered thanks to microcredit. A compelling argument it is, but the evidence, sadly, is thin.
Many men send their women to obtain loans which they themselves would not be eligible for, as Weber (2002) found. Thereupon they allocate the loan within the family as they see fit, possibly buying a rickshaw which they themselves pull, or on-lend to a relative with an existing business. However, if repayment becomes a problem, it is the woman who is held responsible by the microfinace organisation, and is then subject to legal and social sanctions. Read the rest of this entry »
governancexborders.com 