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Excerpt from “The Political Economy of Microfinance: Financializing Poverty”, Chapter 2, A Genealogy of Microfinance.
Two basic types of story are commonly told about the origins of modern microfinance. One is the underhistoricized version, whereby Dr Muhammad Yunus (and/or a handful of other pioneers) “invented” or “discovered” it: “The modern microfinance movement began in Bangladesh in 1977, as an experiment by economics professor Muhammad Yunus … Over the next three decades, the model he established became widely accepted and replicated in other countries as a way to fight poverty. Microfinance spread around the world and earned Yunus a Nobel Prize in 2006” (Wharton Business School 2011). In this and similar tales, before the 1970s, microfinance has no meaningful history.
The overhistoricized version meanwhile draws parallels and connections with various prior credit systems and financial interventions, portraying microfinance as part of a long lineage of poverty-alleviation programmes through credit. For instance, “modern microfinance did not arise de novo thirty-five years ago. The ideas within it are ancient, and their modern embodiments descend directly from older successes” (Roodman 2012a: 38). Here, today’s microfinance sector is all history, and merely the temporary pinnacle of a long, quasinatural evolution.
Both stories are unsatisfactory, not least because they downplay (or ignore) the political-economic context of microfinance; they overlook the “visible hand” of the state in its emergence; they fail to show how microfinance arose out of particular historical circumstances (neither as sudden discovery nor as revival of ancient ideas); above all they are blind to the insecurities, uncertainties and contingencies which shaped today’s microfinance sector. Microfinance was neither a sudden and miraculous discovery nor a historical necessity.
I knew I was opening an interesting book when I picked up Lendol Calder’s „Financing the American Dream: A Cultural History of Consumer Credit”. But I had no idea that, in reading the historical chapters, I would stumble onto the microfinance of the early 1900s. Published in 1999, Calder’s book tracks the rise of consumer credit, from Victorian society’s scorn for debt, to credit as a practical life necessity in modern societies. It’s a great read. And against the backdrop of the 2008-2010 credit crisis, this book is as poignant as ever.
However, what astonished me most is that modern microfinance, it turns out, has its almost exact equivalent in North America in the early 20th century. The public of rich countries is currently enthralled by the notion that a supposedly innovative set of morally-driven credit institutions could create a better society, a world without poverty, more empowered individuals… This is so much an instance of history repeating itself, it’s almost creepy. Calder writes how well-meaning people in America tried lending to the poor to help them escape poverty by building up the licensed small-loan industry – before World War I, before the Model T, before Morgan Stanley – and failed. As Calder explains on pp. 111-112, the licensed small-loan industry was created to help the poor take charge of their lives through small enterprise. But credit did not create more entrepreneurial, freer human beings; instead, as an unintended consequence it created the consumer culture of the USA which we know today.
“The lenders and reformers who organized the licensed small-loan industry did not view themselves as advance agents for debt-based mass consumerism. On the contrary, through the mid-1920s small-loan lenders conscientiously resisted modern consumerism, at least what they could see of it. The business of personal finance was perceived as an exercise in philanthropy and social welfare, as a way of liberating workers from the clutches of poverty and the loan shark. In order to combat the odium attached to their business, small-loan lenders characterized themselves as upholders of the American dream. Read the rest of this entry »
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