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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. 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 Political Economy of Microfinance Financialising Poverty

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 »

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…

Read the rest of this entry »

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.

Read the rest of this entry »

Update (8.1.2014): The court case against the Moroccan anti-microcredit activists is postponed again until 28 January 2014, because a new judge is being sent from the capital, Rabat.

Update (18.12.2013): The verdict was postponed yesterday until 6 January 2014, due to nine prosecution witnesses not showing up. A demonstration was held in front of the courthouse.

A woman and a man who led protests against microfinance institutions in Morocco are on trial. They risk of five years prison sentence without a chance of parole.

Amina Mourad and Benasser Ismaili, this communiqué (via ATTAC Morocco) reports, are leaders of the Association de Protection Populaire pour le Développement Social, an organisation of roughly 4,500 women who have been rallying against the policies, practices and interest rates of MFIs in Morocco since 2011. Four MFIs took Mourad and and Ismaili to court on counts of libel and threats. After the activists were found “not guilty” in the first instance, a new organisation backed by Planet Finance went into appeal, threatening them again with imprisonment. The verdict is expected on 17 December at the courthouse of the desert city Ouarzazate.

Morocco was the site of a microfinance crisis in 2008, caused by ever-larger loans to groups of borrowers, leading to 10 percent of clients not repaying (or not being able to repay) their loans by June 2009. The central bank estimated that 40 percent of borrowers had loans from more than one MFI just as the repayment crisis began (source). Even the always-positive ACCION Centre for Financial Inclusion admits that there is no effective client protection in Morocco: “Measures have been put in place to advance the adherence to the principles of client protection. While much has been achieved to date, there remains much more yet to be accomplished.”

The World Bank is a major backer of microfinance expansion in Morocco, hoping to show that microfinance markets can recover from the repayment crises they generate. The two largest MFIs in Morocco (Al Amana and FBPMC) earned a rate of profit of 45 and 28 percent, respectively, in the second quarter of this year (Mixmarket).

Jailing the protestors will certainly not improve the reputation of MFIs in Morocco, and may lead to violence. ATTAC have called upon the court to release the accused, asking for an international demonstration of solidarity via letters like this: Read the rest of this entry »

(*don’t know your customer)

Truth in advertising has never been very highly valued in the microfinance sector. Know-your-customer (KYC) sadly is also a much-espoused but rarely-heeded principle. The current promotional video for on-line lending platform Kiva shows that Kiva cares about neither.

This most widely known online microlending platform once claimed it facilitated person-to-person (P2P) microending. After the New York Times debunked that as a deceptive illusion in 2009, Kiva had to retract the claim, now fielding the (far clearer?) promise to “connect people through lending to alleviate poverty”. In fact, what Kiva does is merely lend your money for free to microfinance institutions (MFIs), which can then on-lend the money in whichever way they see fit, at interest rates somewhere between 20% and 100% APR. The joyful little cartoon video about “Pedro, a farmer who gets a loan through Kiva.org and transforms his business” doesn’t exactly make this clear.

But the main problem with Kiva’s video How Kiva Works is that the claimed impact of microloans is so absurd, it prompts serious questions about who at Kiva actually knows anything about what microfinance does. Let’s briefly look behind the cutesy imagery.

Read the rest of this entry »

Alex Counts is the President and CEO of Grameen Foundation and a biographer of Muhammad Yunus, the Grameen Bank founder. Given his position in the large network of Grameen, he holds sway in the microfinance world and beyond. So when he publishes an attack on independent research on his blog, I take to represent a reasonably broad antiscience sentiment in the microfinance industry.

In his article, the head of Grameen Foundation laments the emergence of “a new generation of researchers” rising to “debunk the myth of microfinance being an effective tool to fight poverty” (I consider myself part of this generation, but I’m sure Counts doesn’t mean me). He writes about a “conflict” between researchers and practitioners, questions whether practitioners are to blame for not having brought researchers into the fold, says researchers have supported sensationalist reporting against microfinance, and claims they have not tried to contribute (enough) to poverty alleviation. Then he delves into an elogy for Tim Ogden, head of the Financial Access Initiative at NYU. The overall message – research results which don’t support microfinance should be disregarded; the title-giving Haiti cue is a bit of a red herring – is akin to a call to sticking one’s head in the sand when threatened.

The ostrich, unlike the microfinance CEO, is falsely believed to stick its head in the sand when it feels threatened.

Image: Bob Jagendorf/Wikimedia Commons CC BY-SA 3.0.

I’m writing this to respond to Counts’ piece and his core request “that we get beyond debates about “whether microfinance works” to more fruitful and action-oriented dialogues about “how it can work better”.” The following is my small defense of academia. Read the rest of this entry »

On October 2nd thirty years ago, Muhammad Yunus founded the Grameen Bank in Bangladesh, the world’s most famous microfinance institution, by the grace of a special ordinance from dictator Hussain Muhammad Ershad. The German radio station Westdeutscher Rundfunk decided to commemorate this event with a 15-minute piece which included an interview with yours truly and with the incredibly well grassroots-informed Andrea Rahaman of non-microfinance NGO MATI.

Though not every statement of mine was used in context – for instance my explanation of the high costs incurred by lending tiny sums and collecting them in weekly instalments, illustrating the inefficiency of microfinance-based poverty relief – I like how the piece directly contrasts Yunus’ pathos-ridden and impressionistic proclamations with Andrea’s and my own sober descriptions of the reality of microfinance in science and on the ground. Thanks to this technique, Andrea and I perhaps got as close to having a real debate with the Gandhi of finance as any regular mortal can; though others certainly have tried, like Tom Heinemann (view part 4 / 2:40 of the documentary, to see Yunus almost comically avoiding speaking to the journalist). Read the rest of this entry »

It’s good to see microfinance researchers seriously studying alternatives to microloans or other microfinancial services. Very poor people need assets and a helping hand more than a loan, so why not hand out a cow or some other income-generating assets, offer training, and provide basic healthcare? That’s what an 18-month “Ultra-Poor Programme” run by SKS Microfinance in India did. But the randomised impact evaluation performed by Jonathan Morduch of New York University, Shamika Ravi of the Indian School of Business and Jonathan Bauchet of Purdue University on this programme turned up a “null” result, similar to those of randomised studies of microfinance.

Perhaps it is surprising to see SKS Microfinance (India’s largest microlender before 2010, and now perhaps most notorious microlender) giving non-repayable one-off kickstarts to ultra-poor households. But the intention of the programme was not purely altruistic; it was to “graduate” households into microfinance, by giving them assets to start a business.

In the programme in Andhra Pradesh evaluated by Morduch/Ravi/Bauchet, people who got a free asset and training to become microentrepreneurs were found to be no better off later than those who didn’t. They also didn’t manage to reduce their debts or increase their savings any more than others. Why? The authors believe it is

explained in large part by substitution with other economic activities. […] During the study period, wages in agricultural labor were rising steadily in the region, so that households in the control group were able to improve their economic conditions in parallel with households in the treatment group. (35)

The opportunities outside the self-employment programme offered similarly improving incomes as the opportunities offered by the programme itself. To what conclusion should this lead us about the concept of entrepreneurial self-lift out of poverty? Overall, the take-home message from the authors is eminently logical:

Read the rest of this entry »

The Book

Governance across borders: transnational fields and transversal themes. Leonhard Dobusch, Philip Mader and Sigrid Quack (eds.), 2013, epubli publishers.
December 2022
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