This article belongs to a special series focused on post-development issues which was created in co-operation with the University of Vienna.
Microcredits – and microfinance in general – have recently been hyped as a means to overcome poverty. However, the actual outcomes of this instrument often differ from the intended ones. Moreover, the concept is a highly problematic one when looked at it from a post-development perspective. Some of its shortcomings, though, could be overcome by hybridizing microfinance with the post-development concept of a language of a diverse economy.
Starting in the 1970s microcredit became an element of the so-called poverty reduction measures (Elahi/Rahman 2006: 478). In 1976, the economist Muhammad Yunus started to conduct a series of experiments lending tiny amounts of money to poor people. Successful as these tests were the Grameen Bank was founded in 1983 – a bank specialized in microcredit. In order to be allowed to take out a small loan people do not have to present any collateral. Instead the mechanism of group lending is applied which allows borrowers to guarantee each other’s repayments1. This approach has been replicated in dozens of countries and microcredit has been spreading for the past decades (Armendáriz de Aghion/Morduch 2005: 11 f.).
At the end of the past millennium the term microfinance was introduced into the development discourse. Microfinance as a “development approach” (Elahi/Rahman 2006: 477) goes beyond microcredit (Elahi/Rahman 2006: 477): It is “a collection of banking practices built around providing small loans […] and accepting tiny savings deposits” (Armendáriz de Aghion/Morduch 2005: 1) as well as providing insurance (Armendáriz de Aghion/Morduch 2005: 14). There is a big hype when it comes to microfinance (Dichter 2006). By now 1,880 Microfinance Institutions have been reported to exist serving 90.7 million borrowers with an average loan balance of USD 523.7 per person (Mixmarket 2010). Microfinance seems to have “emerged as the main development model” (Moodie 2008: 454). There have been microcredit summits taking place (Armendáriz de Aghion/Morduch 2005: 16), the year 2005 was the “International Year of Microcredit” (see online-text) and with the UNCDF (United Nations Capital Development Fund) there even exists a UN-Organization focusing on microfinance.
However, despite the spreading of microfinance there is also a lot of skepticism involved when it comes to this instrument. Researchers and activists alike are raising concerns over its concept and outcomes (Moodie 2008: 454). Even more do so post-development authors: evidently, microfinance is anchored within the discourse of development (Brigg 2001: 240) – itself a highly problematic concept. Taking into account the various concerns raised by actors coming from different areas, ought microfinance as an instrument to be disapproved of instead of hyped? Or – and this is the main research question of the paper at hand –
is microfinance a viable mean for enabling people to conduct a good life if constructed in a different way than it is by now? How would that difference look like?
Obviously, this question cannot be answered completely within this short text. Microfinance is a very broad and complex issue. However, the attempt is conducted to at least give an idea about the subject matter of microfinance and the difficulties involved as well as one possible way of overcoming its shortcomings. The text starts with an analysis of the prevailing nature of microfinance and of some of the problems it causes. The skepticism vis-à-vis microcredit and microfinance respectively is presented. Reasoning starts by asking whether this instrument – the way it is constructed – is able to meet its goals. Subsequently, microfinance is analyzed taking into consideration the points raised by post-development authors. Not approving that microfinance ought to be opposed to at all costs the third chapter is discussing a possibility of making use of microfinance outside the boundaries of the development discourse (Sachs 1992: 4). The paper ends with a concluding section.
The idea of this paper – besides simply criticizing microcredit/microfinance from a post-development perspective – is to offer an outlook of how to use this instrument in a way more sensitive to the clients’ needs and less forcing on them the values/thinking of the “West”. It is relevant to deal with this question since microfinance has developed to a real industry generating lots of profits for the various institutions and since it is, therefore, unrealistic to believe that due to its partly disadvantageous impacts on people’s lives microfinance will be abolished. Moreover, there are people who want to take out loans and benefit from other financial services. Who are we, to deny this request? Especially if the wish does not really stand for free will but rather it is a kind of survival strategy in a world dominated by capitalism. For these two reasons it is relevant to identify a possibility of overcoming that dilemma. One way would be to change some of the mechanisms of microfinance, supplement it by other means and by doing so make it work in a way that enables the clients of microfinance institutions to a good life and saves them from negative impacts. All the results presented in the following sections are based on a detailed literature research as well as on the inputs received at Tomas Profant’s class “Post-Development” at the University of Vienna.
There is a huge hype prevailing when it comes to microfinance. It seems to have a huge potential for development. Looking beyond this hype is the goal of this chapter. First, microfinance and its outcomes are critically analyzed without, however, scrutinizing the concept of development in general. Only the second part of this section discusses microfinance from a post-development perspective which implies criticizing the whole concept of development.
Staying within the “particular cast of mind” (Sachs 1992: 1) which development is allows an analysis of microfinance based on the aims institutions – which are actively involved in that area – officially want to achieve. Measured by these goals microfinance cannot be clearly considered operating successfully. Sometimes microfinance initiatives have “problematic and […] violent outcomes” (Moodie 2008: 454) as will be shown in the following paragraphs. However, generally speaking it is rather difficult to measure and evaluate the impact of microfinance. Can the often mentioned high rate of repayment for example really be considered as an indication of its success? Which impact does microfinance have on gender relations (Fernando 2006a: 20)? What has been happening to the existing local, informal credit systems after the appearance of formal institutions offering microcredits (Dichter 2006)? These – and lots of questions more – need to be paid attention to when evaluating microfinance and the hype around it. Only few of these questions can be answered by applying statistics and calculating indicators. Nevertheless researchers are trying to do so by inventing concepts like “social efficiency” (Gutiérrez-Nieto/Serrano-Cinca/Molinero 2009: 104 ff.).
A lot of microfinance institutions focus their activities on women. They claim to do so in order to empower them. Moreover, researchers speak of a “significant and positive relationship between efficiency in supporting women and efficiency in fighting poverty” (Gutiérrez-Nieto/Serrano-Cinca/Molinero 2009: 115). One must not forget, though, that female clients turned out to be more reliable than male customers. Obviously, they are amenable to the disciplinary imperatives banks like Grameen are using (Brigg 2001: 243). Lending to the former, thus, reduces the financial risk for microcredit institutions (Armendáriz de Aghion/Morduch 2005: 13 f.). However, the money still often ends in the hands of the borrowers’ male relatives (Moodie 2008: 454).
Besides the question whether women in the end are really holders of the credit money, other gender-related aspects need to be considered: The strict repayment schedule for example produces a strong pressure on women which often forces them to informally borrow money from lenders who are charging extremely high interest rates and who might react in an aggressive way if repayments are due and not done (Moodie 2008: 454 f.). Often borrowers are forced to sell their basic food reserves in order to receive money for the loan repayments (Fernando 2006a: 24). Moreover, if the other members of the household resist any shift of power, higher income for females will not actually empower them (Bebbington/Gómez 2006: 110).
Since the private sector cares for the poor responsibility for doing so is taken off the state – a process which seems to be a global trend (Fernando 2006a: 5). This is a dilemma all NGOs and social businesses face when engaging in their activities which are supposed to entail development – a very problematic concept itself as is shown in the following chapter. But leaving aside these concerns at this point, one can identify microfinance as one way of privatizing and depoliticizing (Brigg 2001: 242) poverty. This instrument puts the burden of escaping the poverty gap on the shoulders of the poor and makes it seem like they are responsible for their situation (Brigg 2001: 242). Individualization and production of hominesoeconomici are the consequence which is highly problematic as the following chapter points out. While privatizing the responsibility for the own welfare on the one hand, the entire household becomes “framed as public domain and placed under the control of the entire community, local government officials and the NGOs” (Fernando 2006b: 194) by the processes involved in the group lending mechanism on the other hand. Leaving aside the ideological implications of that process it also needs to be considered that not each person has “entrepreneurial” skills. The majority of the people living in the global North do not have their own businesses. Therefore, the assumption that people in the global South are all entrepreneurs who are only lacking access to credit money seems to be inaccurate (Dichter 2006).2
Last but not least, the underlying principle of microfinance is that development is brought about by economic growth which includes “extending markets” (Armendáriz de Aghion/Morduch 2005: 3). Basically, microfinance institutions consider economic growth and the advancement of a free market ideology as the equivalents of development – an idea which has widely been criticized even from within the development discourse and even more so by post-development authors. As the reason for the failure of development so far proponents of this understanding of development identify the inability of theorists and practitioners to really “reach the poor, understand their environments, and to recognize their potential to be active participants in the economy” (Fernando 2006a: 7) as well as – more generally speaking – market potentials which lack realization so far (Weber 2006: 44). All these are tasks which microfinance promises to fulfill.
What the former paragraphs were supposed to show is that according to its “official” goals the story of microfinance is not convincingly a successful one when looked into it in detail. Being part of the concept of development microfinance kind of automatically “connotes the best of intentions” (Sachs 1992: 4) – like lots of other development instruments do. However, authors of post-development argue that these intentions are not merely “noble” and “selfless” per se but have rather to be seen as being part of the development discourse – a discourse completely shaped by the “Western perception of reality” (Sachs 1992: 5). When looking at microfinance from a post-development perspective, attention instantly is drawn to the
“[n]otions of individual initiative, determination, and provision of capital to improve people’s situations and increase economic growth [which] are a micro version of the dominant economistic development approach” (Brigg 2001: 240).
A hidden agenda appears: The way in which microfinance is constructed “crystallizes a set of tacit assumptions which reinforce the Occidental worldview” (Sachs 1992: 4 f.) and the vision of advocates of microfinance “is congruent with the framework of global capitalism” (Vakulabharanam/Motiram 2007: 8). Measured by the aim of spreading capitalist values, microfinance – as one of the many instruments applied by actors of the development cooperation – actually is “successful”.
According to DuBois (1991: 21 ff.) there is a certain way the development discourse works. Using his concept for analyzing microfinance points out its anchor within this discourse: First visibility has to be created – a problem needs to be identified (DuBois 1991: 21). In the case of microfinance that would be poverty and the lack of collateral poor people suffer from since consequently they do not have access to loans which are supposed to be needed. In this context, that is the chosen category indicating poverty (Escobar 1995b: 41). Secondly, “’better’” and “’proven’ ways of doing things” (Du Bois 1991: 21) are introduced by “experts”: Poverty is supposed to be overcome by microcredit and other innovative financial services (Vakulabharanam/Motiram 2007: 3) since that would enable people to start up their own businesses. Microfinance institutions are offering the “necessary” expertise which, thirdly, leads to “disciplinary power relations” (DuBois 1991: 21) which make poor women “manage their own welfare through active participation in the liberal economy” (Fernando 2006a: 6) and subordinates the clients of microfinance institutions. The result is a “hierarchization of cultures” (Du Bois 1991: 22).
One could argue that microfinance is different from other development instruments since it empowers people – especially women – by enabling them to start their own business and become independent from external aid. However, the way it is constructed
“microfinance embodies the vision of multilateral organizations (e.g. World Bank), aid agencies, and policy makers about development, although it entails the participation of the “subjects” of development. We can describe it as a strategy based on “civil society” to achieve development, albeit one conceived from above” (Vakulabharanam/Motiram 2007: 3).
Although this statement obviously is not one made by post-development authors since development as a concept is not questioned here, the writers acknowledge that not the subjects decide what development is but certain “experts” do so. How the instrument of microfinance works is decided by people “from above” while only the implementation is done by the local civil society. Like that people at the basis might feel empowered and might believe that they are acting in a self-determined way while the fundamental decisions have been already made for them by some kind of elite.
Another argument often given by proponents of microfinance is that informal lending and saving services have been at work long before microcredit institutions appeared. Therefore, these financial services do not seem to be forced on communities from the outside. Moreover, compared to informal lending they “offer greater safety, higher rates of return, quicker access to funds, and greater anonymity” (Vonderlack/Schreiner 2002: 604) which the clients benefit from. However, this argument has to be seen within a broader framework: The question is why informal lending institutions have been existing in the first place? It seems that people feel the need to take out loans. Why, though, they feel this need? They might suffer from a fundamental lack of money in order to live a good life which raises the question of why the state is not taking care of them. That brings along lots of other questions concerning the reasons for a gap between countries of the global North and countries of the global South as well as between the rich and the poor within a country – questions which cannot be replied here.3 The point which ought to be made is, though, that it is too shortsighted to legitimate the appearance of formal microfinance institutions with the previous existence of informal lending services.
Microfinance institutions which offer their services on a for-profit basis identified “integration into the market economy” as the way to reduce poverty (Vakulabharanam/Motiram 2007: 4). As long as speaking of granting microcredit to people this is also true for NGOs. A “relationship between the prevailing popularity of microfinance and the consolidation of neoliberal economic ideology worldwide” (Fernando 2006a: 5) can be identified. However, referring to poverty reduction as the official goal “gives legitimacy to the movement in the eyes of policy makers, funding agencies, multilateral organizations and the general public”(Vakulabharanam/Motiram 2007: 4). Since these institutions have this “noble” motive for doing business, they are not scrutinized. Social business is the buzzword in that context – an idea developed by Muhammad Yunus (Social Business Tour 2010):
“A successful social business combines the social commitment of charitable institutions financed by donations or taxes combined with the entrepreneurial vitality and economic viability of a well-managed conventional business” (Social Business Tour 2010).
The question of whether the idea of social business will be – or has already been – co-opted by the prevailing development discourse and whether it is only a new form of capitalist economic activity which arouse due to increasing awareness and scrutiny of the consumers, cannot be dealt with at this point. That Yunus’ idea is called a “social-consciousness-driven capitalism” (Elahi/Rahman 2006: 481) is, though, an indication that placing the word social in front of business does not necessarily bring about any change in ideology. What definitely needs to be pointed out is that a big load of microfinance institutions – 1,880 organizations worldwide (Mixmarket 2010) – are benefitting from granting loans and offering other financial services to poor people. Microfinance has become a huge business and has let banks as well as NGOs flourish “at a time when the effectiveness of foreign aid to ease the burdens of the world’s poor faces fundamental question” (Armendáriz de Aghion/Morduch 2005: 2). The existence of all these institutions who are involved in microfinance depends on poverty, its construction (Escobar 1995b: 21 ff.) and the victimization of people in the global South. NGOs and microfinance institutions, therefore, have a great interest in maintaining the development discourse and making use of it in a way that let them choose lack of access to credit as the category of poverty (Escobar 1995b: 41) while other categories are ignored.
Returning to the term social business it is interesting as well as alarming that the social values these institutions claim to cherish are only respected to a certain point: As soon as they harm profitability it seems that the letter is prioritized:
“There can be a contradiction between the imperative for high recovery rates and certain other values that microfinance aims to cherish (e.g. helping poor with dignity, reducing dependence upon informal moneylenders). In theory, this contradiction has not been resolved, yet in practice it has been resolved in favor of recovery” (Vakulabharanam/Motiram 2007: 5).
Following the two strings of criticism just presented the question arises whether it is best to stop activities in the field of microfinance completely? Or is there a way it could contribute to enable people to conduct a good life? This is the question the next chapter deals with.
Microfinance is caught within the specific “unconscious structures” (Sachs 1992: 4) of the development discourse which has been shown in the previous chapter. The last section is supposed to “contribute to the liberation of the discursive field so that the task of imagining alternatives can be commenced” (Escobar 1995a: 14): Thinking outside the boundaries of the development discourse, overcoming the constraints (Sachs 1992: 4) and still holding on to the instrument of microfinance might be a solution to the dilemma that despite all the legitimate skepticism people in countries of the global South ask for microcredit and other financial services on the micro level: “[…] all the women I knew in Debaliya wanted a loan” (Moodie 2008: 455).
Primarily, microfinance is about configuring and disciplining diverse economic activities in a way that channels them towards the major goal of capitalism – the creation of surplus value (Fernando 2006a: 10). The very language of microfinance itself is extremely productive for the expansion of capitalism: self-reliance, self-sufficiency and empowerment are the buzzwords (Fernando 2006a: 17), the production of hominesoeconomici the result. The hype around microcredit “demonstrates the remarkable capacity of capitalism to make use of the language and practices of its critics and opponents to secure conditions for its own reproduction” (Fernando 2006a: 31). Language transmits values and disciplines people as well as relations in a way to serve a certain interest (Fernando 2006a: 28) – which is the expansion of capitalism in the case of microfinance. Basically, an economy can be shaped in various ways – ways which are not visible under the current framework since the language of capitalism has invaded each and every kind of economic activities and thereby narrowed the possibilities of economic activities down to a small number. This disciplining can be broken by simply constructing and (re-)introducing a language of economic diversity4 – a concept developed by Gibson-Graham.
By drawing on Laclau’s and Mouffe’s theory of politics Gibson-Graham argue for the repoliticization of the discursive field of “the economy” which would, thereby, entail a destabilization of the hegemony of understanding economy as a capitalistic, manageable and governing system (Gibson-Graham 2006: 54 f.). By talking about economic activities in a certain way – in accordance to the hegemonic discourse – certain images are produced and reproduced again and again allowing only for certain kinds of actions and, therefore, for a certain kind of economic development. Changing that language and expanding it to one which is able to comprise the diversity of economic activity which actually exists in reality would result in a different understanding and, thus, different actions (Gibson-Graham 2006: 54 f.). Capitalism and its inherent concepts being the benchmark for any economic development need to be challenged (Gibson-Graham 2006: 56 f.) while cooptation of a challenging approach by the “hegemonic capitalocentric discourse” (Gibson-Graham 2006: 59) needs to be avoided at the same time.
Without any claim of completeness and by referring to it as a “weak theory” (Gibson-Graham 2006: 71) Gibson-Graham present such a challenge: a language of a diverse economy – derived by the method of “rereading for difference” (Gibson-Graham 2006: 71) – which allows for describing the various forms transactions, labor and enterprises can take. Analyses of these diverse forms are based on the following premises:
Depending on the rules of commensurability transactions can be divided into nonmarket, market exchange and alternative market transactions. Labor might get paid a wage, alternatives or remain unpaid – which does not mean being completely uncompensated. An enterprise can be characterized as capitalistic, noncapitalistic or alternatively capitalistic (Gibson-Graham 2006: 60 ff.). Appealing visualization of the diverse economy (Gibson-Graham 2006: 68 ff.) as well as practicing the use of the new language by analyzing a sector, an enterprise or an individual according to it (Gibson-Graham 2006: 72 ff.) might provoke political effects in the sense of “economic transformation” and the “strengthening [of] the community economy” (Gibson-Graham 2006: 77).
When producing the picture of a diverse economy different entrance points can be identified where microfinance could come into play. The most important insight is that microfinance and loans must not be equated with capitalistic enterprises only. By presenting the different shapes economic activities can assume microfinance can be linked to these diverse economies in various ways. The process of identifying the diversity of the economic system is one in which borrowers should actively be involved. Prior to granting loans and offering other financial services workshops ought to be held and a language of economic diversity developed.
The way microfinance is constructed by now it is not a viable means for enabling people to conduct a good life since it creates unintended side effects on the one hand, and is part of the concept of development – a highly problematic concept with hidden agendas involved – on the other hand. However, there might be a way of hybridization (Escobar 1995c: 217 ff.) of microfinance and the post-development concept of constructing a language of economic diversity which could overcome the shortcomings: A change in language when talking about the economy entails a change in focus which in turn changes actions and, more precisely, the way in which microfinance is used. However, how this hybridization would actually work in detail is still up for discussion. Moreover, it definitely would be a difficult task to convince microfinance institutions and NGOs which are giving out loans to construct a new language of economic diversity. How could that be achieved?
The author is a political science student at the University of Vienna.