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The Nobel Peace Prize awarded to Muhammad Yunus and the Grameen Bank in 2006 went practically unquestioned. But since then, particularly over the last years, a public pro-microfinance/anti-microfinance debate has taken a clear shape with well-known lines of argument running both-ways. Many studies have asked: “Does microfinance work?”. And some have more pointedly asked: “Why doesn’t microfinance work?“.

New questions are needed if new answers are to be generated. The Political Economy of Microfinance: Financializing Poverty offers both. Starting from the question “What does microfinance work at – and how?”, it offers new insights into which have particular significance in light of the continually unresolved issues around poverty impact. More than 35 years into the microfinance experiment, the fact is we still don’t know whether microfinance works at reducing poverty – and there are serious reasons to doubt that it does. What we do know (or can know), however, the book argues, is that microfinance works at financialising poverty.

The Political Economy of Microfinance Financialising Poverty

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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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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 »

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 »

Over at “social enterprise” website NextBillion, Jemima Sy of the World Bank’s Water and Sanitation Program posted an interesting article debunking “Five Myths About the Business of Sanitation“. While I hardly disagree on some of the debunkings – for instance, it is true that poor people don’t see much value in minor upgrades, and instead want to go the whole nine yards when they pay for water and sanitation – the overriding conclusion that water and sanitation can and should be more of a business just ruffled my feathers. As a response, here are my Five Myths of the World Bank’s Approach to Water and Sanitation:

1. “Water and sanitation are untapped business opportunities.” Myth. Most of the privatisation efforts under Structural Adjustment went badly. Networks usually weren’t expanded, many companies didn’t even manage to make a profit. Water and sanitation work badly as businesses.

2. “Water and sanitation are private problems.” Myth. Clean water and environments are actually a public good. They have large public benefits which households cannot privately capture, and therefore are best tackled through public interventions. Read the rest of this entry »

Thirteen years ago the largest-ever gathering of world leaders took place on 8 September 2000 at the United Nations (UN) General Assembly in New York, where the UN Millennium Declaration was made. The Declaration was the most supported, ambitious and specific list of global development goals agreed upon to date, and established a list of commitments to reduce extreme poverty by 2015 which became known as the Millennium Development Goals (MDGs).

The Millennium Development Goals set in 2000

Source: United Nations

The MDGs were significant for global development cooperation due to their ability to stimulate global support, specifically financial resources. Many aid agencies and donors used them to direct their funding projects, and several governments also largely founded their health strategies upon them to receive external funding, which could comprise over 50 per cent of the state’s health budget. The MDGs thereby created a specific global development agenda, which some critics however now argue was not entirely in tune with the real needs of development of low- and middle-income countries. For example, proponents of a greater focus on non-communicable diseases (NCD) criticise that despite NCDs are now the leading cause of death worldwide, they did not receive a single mention in the 2000 MDGs.

Historically, infectious diseases such as HIV/AIDS, Tuberculosis and Malaria have been at the center of global health initiatives, as they easily spread across national borders and threatened the lives of millions of people in low- and middle-income countries with under-developed health care systems. Yet as the world celebrates its progress on the reduction of infectious diseases, the globalisation of unhealthy lifestyles, rapid and unplanned urbanisation, and liberal market forces have propelled a possibly greater threat to the health and development of the Global South, organisations like the World Health Organisation (WHO) fear. This threat is often referred to as “the invisible epidemic” of non-communicable diseases (NCDs), yet strategies on how to overcome them still remain unclear.

WHO 2008-2013 Action Plan for the Global Strategy for the Prevention and Control of Noncommunicable Diseases

Causes and effects of non-communicable diseases

Source: World Health Organization

This blog entry is the first in a series of contributions exploring the rise of NCDs as a major health and development issue in low- and middle-income countries. The aim is to present and discuss evidence of the leading actors who are increasingly seeing NCDs not only as a challenge for developing countries, but also as an issue of transnational health governance that cannot be resolved at the national level alone. Read the rest of this entry »

This post is provided by our guest blogger Ingo Nordmann. Having gained his Master’s degree in Global Studies in Leipzig, Poland, and South Africa, Ingo has worked at the German embassy in Ghana and in intercultural management consulting.

If you’re 28 years old, with two university degrees, and your parents have invested all their money in your education, and you’ve done everything that was expected of you: if society then tells you, ‘sorry, we don’t have a job for you’, then it’s easy to understand why people revolt. We have to give young people hope. In Europe, the world’s richest continent, there has to be a place for young people, damn it!

With these words, Martin Schulz, President of the European Parliament, describes the heart of the problem. Most young, unemployed Europeans are not marginalized, deprived, and lazy, but they live in the centre of society – a society that seems to have no use for them. This is particularly the case in some Soutern European countries such as Greece and Spain where unemployemnt rates for young people are over 50% as compared to currently 8% in Germany. Youngsters from countries outside of the EU face even more severe challenges on the job market.

Recently, I went to the Balkans to gather some impressions from the beautiful, but often-neglected Former Yugoslav Republic of Macedonia. In the country’s second-largest city, Bitola, situated close to the Greek border on the foots of Pelister National Park, I talked to young people, to officials at the municipality, and to activists at the Business Start-up Centre Bitola, to find out how young people in this region evaluate the situation and what the government and NGOs are doing to change it.

Bitola’s main street – a popular meeting place for young people

Bitola’s main street – a popular meeting place for young people

During a training course supported by the EU’s Youth in Action Programme and YMCA Bitola, I had the chance to interview 22 young activists, volunteers, youth workers, and students between the ages of 21 and 28 from 10 countries. They mainly came from countries outside of the EU, namely Albania (3), Bosnia and Herzegovina (2), Kosovo (2), Macedonia (3), Serbia (2), and Turkey (3), while seven were from EU countries (Romania, Portugal, Poland, and Slovenia). Read the rest of this entry »

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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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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