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This coming Thursday, I’ll be a panelist on one of The Guardian’s online Live Q&A’s, a series of events which they’ve been running since 2013. The topic of this session is What are the barriers to financial inclusion in fragile states? and questions include: “How can more opportunities be created for people to save and borrow in volatile economies? What expertise can NGOs, the telecoms industry and policymakers offer around innovative ways to reach the most cut off communities? And how do we measure success in countries where conditions are volatile?”

The Q&A will run on Thursday 5 Nov. from 13:00 to 15:00, with a panel of invited experts who answer readers’ questions and comments online and discuss with each other; the whole panel should be confirmed by Wednesday. Of course, input and participation in the Q&A by the readers of this blog would be very welcome and should enrich the debate. As much as it may appear a niche topic, the session connects to questions about the exact role of financial services in development, the priority which donors give to financial development vis-a-vis alternative strategies for income-generation and social inclusion, and the microfinance experience of countries like Bosnia-Herzegovina.


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.

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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 »

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:

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This post is provided by guest blogger Domen Bajde of the University of Southern Denmark.

As evidenced by inventive movements and campaigns (for a future example see Half the Sky Movement: The Game), the field of charity is undergoing considerable dynamics. As a skeptically-optimistic observer, I am happy to see research that explores such developments against the backdrop of broader material and social change, appreciating their innovativeness and critically questioning the suppositions, mechanics and stakes at play.

I recently stumbled upon a book sharing my skeptical optimism. Surveying historical change in Amnesty International and Oxfam advertising, Chouliaraki argues that poverty is increasingly instrumentalized, setting the focus on the “self” (of the Western donor), turning charity into an ironic spectacle largely shaped by “compassion fatigue” (a.k.a. avoiding stuff that is unpleasant). Rather than amplifying the voice of those in need, many charities end up prioritizing the interests/pleasures of donors.

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This is a book review I wrote for the microfinance news site microDINERO about Hugh Sinclair’s controversial new insider/whistleblower account of the microfinance industry.

Hugh Sinclair, 2012: Confessions of a Microfinance Heretic: How Microlending Lost Its Way and Betrayed the Poor. San Francisco, CA: Berrett-Koehler Publishers.

Outside of the mainstream and microfinance’s promotional campaigns, many academics, NGOs, critical journalists and also former microfinanciers have quietly criticised microfinance for years – only to be ignored or dismissed as lunatics or ideologues. The problems in microfinance, however, are very real, and Hugh Sinclair’s controversial new book “Confessions of a Microfinance Heretic” makes them impossible to ignore.

For the few independent researchers, fortunately able to study microfinance without reporting to microfinance-supporting bodies or the major research groups (which happen to be mostly funded by the same organisations which fund microfinance), the problems of microfinance are not news. They include that microfinance, by its very nature, supports only the simplest, least-productive and lowest growth-potential activities, as Milford Bateman argues. They also include the fact that most loans are simply used for consumption, which even CGAP recognises in its attempts to redefine microfinance in terms of “financial inclusion”, ignoring the problem of these loans’ unsustainability. This is linked to the risk of overindebtedness and debt traps researched bravely by Jessica Schicks, and evidenced most gruesomely in the Indian microfinance crisis. There is also the problem of microfinance building on and employing immense power asymmetries, particularly between men and women, as Lamia Karim has shown, rather than removing these asymmetries through actual processes of empowerment. These are just a few issues.

With Hugh Sinclair along comes someone who has extensive real-life experience, a fascinating story to tell – from his original belief in microfinance to his disillusionment and ultimate heresy against it – and a knack for writing. His book, as devastating as it is entertaining to read, presents a serious challenge to large elements of the microfinance industry. Sinclair adds a new problem to the list of reasons why microfinance cannot keep its promise of poverty reduction, showing that the incentives within the microfinance industry are structured in such a way that positive developmental outcomes can – at best – occur as an accidental by-product; and mostly won’t occur at all. Read the rest of this entry »

CGAP is the World Bank’s (not-quite-so-)arm’s-length sub-organisation whose role is to promote microfinance. CGAP (“see-gap“) once stood for “Consultative Group to Assist the Poorest“, now it officially stands for “Consultative Group to Assist the Poor”. Actually, if nomen were to be omen, it should probably stand for “Consultative Group to assist (those who lend to) the Poor (and not-so poor)”.

Courtesy of Wenger Swiss Army Kives

So many functions … but can it cut?

I don’t expect CGAP to function as an independent evaluator of microfinance. What I do expect is that CGAP publications have minimum standards of research quality and logic.

The most recent CGAP report, entitled “Latest Findings from Randomized Evaluations of Microfinance” (Bauchet et. al.), however, is appalling on both counts. Nearly everything about this report is problematic. It is racked by wishful thinking – to paraphrase: “we may not have evidence that microfinance does what it was supposed to, but we still believe it works” – and it has a disturbing feel about it, which derives from: (1) what the authors have left out, and (2) the heavy tension between concern for the poor and patronising them.

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Ramesh S. Arunachalam, 2011: The Journey of Indian Micro-Finance: Lessons for the Future. Chennai: Aapti Publications.

The microfinance crisis in India which broke out in fall 2010, first imperiling numerous borrowers and then an entire industry, is the most fundamental event in the world of microfinance since the Nobel Peace Prize in 2006. In hindsight, it may even turn out to be the defining moment of microfinance history – never before has the dark side of microfinance, and the vulnerability of the industry, been so brutally exposed to a global audience.

Naturally, these events have attracted a host of opinions and analyses ranging from simply blaming the Andhra government for bringing down a healthy microfinance industry, to accusing microfinance of having become worse than loan sharks. And yet, so far, we understand very little of why India’s vast microfinance sector went so far astray. Thankfully, people like Ramesh S. Arunachalam are out to change this.

Arunachalam has earned the respect of many a reader (me too) with his candid and incredibly well-researched blogging on the Indian microfinance sector. He posts prolifically, but despite (or perhaps because of) his over 20 years of work experience in development and rural finance, he has otherwise kept a low profile. He is not an outspoken critic.

Now Ramesh Arunachalam has applied his sharp analytical approach and evident knack for writing to publishing the first book about the Indian microfinance crisis. The result is a meticulous, evidence-based piece of research which brings clarity into what so far has mostly been an interest-driven and polemical battle of explanations.

In some ways what Arunachalam has produced is, in fact, more than a book; it is a dossier of evidence and analysis of how the Indian microfinance sector functions at the deepest levels, and where its errors lie. It is a biography of an industry in identity crisis, and also a handbook on how Indian microfinance might (perhaps) still be saved. Above all, as the book’s (wonderfully illustrative) cover implies, it is a search for the Faustian, troubled soul of Indian microfinance. Read the rest of this entry »

Few documentaries in the past years can claim to have had as much impact on transnational development as The Micro Debt. Tom Heinemann‘s documentary film, produced for Norwegian public broadcasting, has contributed to a wave of critical reasoning about microfinance, but also to the axing of Grameen Bank’s founder, Muhammad Yunus. While Heinemann wasn’t out to harm Yunus, the documentary’s fallout (as well as the Indian microfinance crisis) was an opportunity for politicians in Bangladesh to remove a weakened Yunus from office.

All in all, The Micro Debt doesn’t shed a good light onto microfinance, and in return has come under fire from the microfinance community, an epistemic community which doesn’t take criticism well. Grameen Foundation in particular has mounted an organised attack on Heinemann and his film, engaging PR firm Burson-Marsteller to disseminate counter-claims and draw into question the film’s integrity. But The Micro Debt is becoming increasingly difficult to ignore or deny. It won in the “Television” category at the Avanca Film Festival in Portugal earlier this year, and may win more awards at the various other festivals internationally where it has been nominated. And it’s going on tour in the USA and Canada this month (see below).

Tom Heinemann: “The Micro Debt- a critical investigation into the dark side of Microcredit” (2010)

The real message of the film is that, after three decades, there is still no concrete evidence that microcredit actually does anything for the poor. Heinemann’s main point is that Western donors have been naive in their enthusiasm about microfinance, and his poverty-stricken interviewees testify that this might even worsen their precarious situation.

A misrepresented film

The film’s director Heinemann visited Bangladesh, the Mecca of microfinance, to check up on the successes claimed by Grameen Bank and other microfinance organisations regarding poverty alleviation. He investigated Grameen’s funding from the Norwegian government (where he uncovered financial irregularities amounting to $100 million) and spoke to numerous academic and practitioner experts. The film also shows him being denied interviews with Muhammad Yunus on several occasions.

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Recently, I’ve been writing a section about the history of microfinance for my dissertation. Having read around a bit, I feel the need to correct a myth that seems all too common among microfinance enthusiasts: that microfinance follows in the footsteps of German cooperative banking. I will admit this is becoming something of a pet peeve. But in fact, microfinance and the cooperative movement have very little in common. Here’s an explanation.

At least not all microfinance histories follow the simplistic story which casts microfinance as an invention of Muhammad Yunus in 1976, essentially saying microfinance has no history. But there is also an account of microfinance which I would call the over-historicised account, which sees microfinance as part of a very long history of credit. Mainly, the idea is that pilanthropists have been using credit to “do good” for aeons because the poor have always needed credit, so microfinance is just the modern iteration of this idea. Muhammad Yunus has even been compared to Friedrich Wilhelm Raiffeisen (by Bernd Balkenhol at the ILO).

Copyright by World Economic Forum by Remy Steinegger ≠ from Public license

Can you tell the difference? Muhammad Yunus; F. W. Raiffeisen

But I don’t think the poor have always needed credit (definitely not before the monetised economy), and I don’t believe microfinance really follows in the footsteps of, say, the Irish loan societies or the German cooperative movement. The particular for-profit financialised “social business” commercial enterprise which is modern microfinance bears very little resemblance to anything before it; it is distinctly a product of the financialised capitalism of our time.

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The Book

Governance across borders: transnational fields and transversal themes. Leonhard Dobusch, Philip Mader and Sigrid Quack (eds.), 2013, epubli publishers.
February 2017
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