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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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This is more shocking news from Andhra Pradesh. Obligatory life insurance sold with microfinance loans may be incentivising overindebted borrowers to commit suicide. Worse yet, it appears that loan officers have been pushing debtors to commit suicide as a way out of debt.

Here’s the gist of a Times of India article by Jinka Nagaraju published earler today:

A government study has found that some MFI agents themselves are encouraging the debtors to commit suicide so that their loans are repaid. This happens because the borrowers are covered by insurance.

Till now, there have been at least 45 suicides reported in the state in the last one-and-a-half months allegedly due to the coercive practices employed by the MFIs in recovering the loans. …

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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.
April 2021

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