Critically analyse the scholarship and practice of one of the major private sector approaches in the light of literature on causes and drivers of poverty and inequality, entrenched disadvantage , structural barriers, principles of empowerment and development effectiveness.
Speed to act on issues
Stability from non-democratic approach
Looking at the state of the world today, and understanding the factors that brought about global and local issues such as poverty, lack of community services, mental illness and homelessness; it can be overwhelming for individuals looking to help. “How can I make a difference?” Every person looking to change things asks themselves this question. And while the role of the government can play a major role in bringing about positive change, roles within governments can be limiting. Working within the behemoth of government can mean years of bureaucratic manoeuvring in order to bring about change. Elections come once every three or four years and promise no immediate resolution to such issues even if the party is favourable to resolving them through proven approaches.
Between government and the individual lies the rich and fertile soil where private enterprise can bring about positive outcomes on community issues. Where government action must be accountable to multiple communities across a nation, private enterprises can choose who they wish to be accountable to. This can provide the enterprise with the speed to act on issues faster. While government policy can change in response to public polls and elections, private enterprise can pursue a single vision answering only to the need to sustain itself financially.
And finally and perhaps most importantly, private enterprise allow individuals to contribute to their community in spaces where government interventions are few and far between.
The purpose of this essay will be to understand and assess the impact of microfinance on alleviating poverty and assisting community development.
What is microfinance? What are the assumptions that microfinance makes about alleviating poverty and structural disadvantage?
Microfinance is the practice of lending small loans, often at low interest rates with a view to alleviate short-term financial disadvantage or assist with development goals of the recipient. Traditional micro finance structures rely on donors providing finance to NGOs who then work with credit officers to provide it to recipients. The premise of microfinance is to provide financial assistance in the form of loans, savings, insurance and other financial instruments to groups of people that would normally be rejected by the conventional banking system due to low-income (La Torre and Vento, 2006). As the micro-finance systems still require repayment of the loans, this broadly appeals to the category of the ‘working poor’. That is, a group who often have a steady income, but not enough to provide a substantial savings base to allow for investment (Lendwithcare.org, 2017).
Theoretical Implications of Microfinance
The origins of microfinance as a community development approach is largely credited to Mohammad Yunus, who started the concept back in the 1970’s (grameen.com, 2017). Yunus believes that when credit is given to the poor, it can help them invest in opportunities that lifts them out of poverty. In his lecture, Yunus defined poverty as:
“…created because we built our theoretical framework on assumptions which underestimate human capacity, by desiginng concepts which are too narrow (such as concepts of business, credit-worthiness, entrepreneurship, employment) or developing institutions which remain half-done (such as financial institutions, where the poor are left out)” (Yunus, 2006).
For Mohammad Yunus, microfinance presents an opportunity to restore faith in the poor by creating an institution that will invest in their skills, as well as their ambitions.
But does it work? Research on the success of microfinance in helping people break the poverty cycle is mixed at best.
Microfinance as women’s empowerment
Grameen Bank’s work started out as a way to assist women in their participation in the local economy. Through the provision of small loans with little to no interest rates, women are able to contribute to financially to household savings through setting up their own enterprise. This ability to contribute financially to the household improves women’s standing within their household.
Aslanbeigui, Oakes & Uddin (2010) find the discourse around women’s empowerment in the context of microfinance problematic. First, because definitions around the concept of empowerment differ depending on the author and the measurement used. Second, the presumption of empowerment is that in increases the ability to exercise strategic life choices without diminishing choices of those around them. However, there is evidence to suggest that in some relationships, the male partner has reacted adversely to their partner’s new role. Third, in cases such as the Grameen Bank, the administration of such loans are predominantly done by men who are often regarded with a greater status than the women who borrow from them.
Does this mean that microfinance as concept has no effect on women’s empowerment? Not so. The critiques by Aslanbeigui et al. (2010) highlight the challenges of empowerment discourse in a culturally patriarchal nation. Financial empowerment alone doesn’t translate into societal gender equality.
Microfinance as asset development
Microfinance as emergency-proofing
To develop an understanding of how microfinance has helped alleviate poverty, it is critical to understand the nature of disadvantage in the communities that microfinance aims to alleviate.
Neoliberal approach to microfinance
One of the challenges to microfinance initiatives is the inherent assumption that profit comes before service. Many microfinance initiatives now charge higher interest rat
Development as capability