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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.

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Excerpt from “The Political Economy of Microfinance: Financializing Poverty”, Chapter 3, The Financialization of Poverty.

Reinforcement for the microfinance narratives of empowerment through finance, and of poverty being a problem of finance [see the last posted excerpt], comes from a vision of poor people as being inherently (or even exceptionally) financially minded subjects. Portfolios of the Poor, written by a team of practitioners and academics who tracked borrowers’ financial lives via financial diaries, has emerged as the key text of the ascendant “financial inclusion” paradigm. Engagingly written but not addressed to very broad audiences, it chiefly provides legitimation among development practitioners, bankers and microfinance experts for their visions of helping poor people to master their lives via financial services. The poor are depicted as Third-World “portfolio managers” (Collins et al. 2009: 238), as savvy and skilful as their Wall Street counterparts, and equally in need of finance. Portfolios effectively portrays the denizens of megacity slums and remote villages, to follow John Steinbeck, as “temporarily embarrassed millionaires” who have merely lost their bank accounts.¹

Underlying the claims made by Portfolios’ authors is the assumption that low-income individuals in the global South are guided by the cognitive framework of the purest specimen of Homo oeconomicus – the free investor. The authors interpreted nearly every financial decision inscribed in their subjects’ financial diaries as rational and optimal, and thereby ultimately deduced that MFIs should feed poor people’s ubiquitous credit needs for everything, not just microentrepreneurship.

Using a loan at 36 per cent interest to buy gold jewellery, as one diarist did, for instance was a sensible choice because “The fact that the loan could be repaid in a series of small weekly payments made it manageable … Price was only one aspect of the loan, less important than the repayment schedule that matched instalments to the household’s cash flow” (Collins et al. 2009: 23). That this diarist had to pay a 36 per cent surcharge for her “investment”, relative to what others would have had to pay, was a non-issue. Read the rest of this entry »

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 »

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 »

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 swiss-image.ch/Photo by Remy Steinegger ≠ from http://de.wikipedia.org 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.
March 2017
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