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
Economic opportunities – the ability to access and utilise economic resources for production, consumption or exchange, including access to knowledge, finance and product or labour markets, and so on;
Political freedoms – the opportunity to decide who governs and makes group decisions, on what principles, with what scrutiny, and the freedoms to criticise, to express views without censorship, and to form associations or parties for political or community purposes;
Social facilities – the arrangements made for education, healthcare, etc. that influence ability to live better, and to utilise other freedoms effectively for personal and communal benefit – making support for education and healthcare particularly powerful;
Transparency guarantees – openness that builds basic trust, so people can interact with confidence, including freedoms to deal with one another with guarantees and expectations;
Protective security – physical safety, as well as economic and other safety nets that prevent disasters leading to abject misery, starvation and death.
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 alleviate poverty through the provision of small loans. Though they had initially set out to work with men, they quickly learnt that women were more likely to pay their loans back on time. To this day, most of their returning customers are women. But how does this feed into the narrative Generally in the not-for-profit sector, the three main arguments for focusing on women are gender equality, poverty reduction and program efficiency (D’espallier, Guerin and Mersland, 2013). 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 (Binaté Fofana et al., 2015).
Microfinance is also argued to impact poverty reduction as women are more likely to invest their income on the wellbeing of their families. The reason of program efficiency is largely explained by the greater likelihood that female borrowers are more likely to repay the loan on time and less likely to default. Consequently, many MFIs focus on women due to the promise of reliability which in turn supports the sustainability of the program (D’espallier, Guerin and Mersland, 2013).
Yet strictly speaking, poverty reduction and regular repayment aren’t what we mean by women’s empowerment. Garikipati (2013) suggests that more effective indicators would be to look at the processes around loan use and repayment. What she found was that many women used their loans to avert family crises rather than to improve financial opportunities. Others used it in the absence of a safety net provided by the state to ensure that household requirements were met. Other interviews suggest that access to loans and loan repayments often became a source of conflict with their spousal partner, which had resulted in money taken from women as a result.
Moodie (2008) also notes the experience of conflict between women managing the self help group as a result of the microcredit experience, but concludes that it did not outweigh the experience of a new found collective organising between the women of Rajasthan.
Successful MFIs however are dependant on adequate welfare provision and feminist mobilisation (Singh, 2012).
Successful MFIs are organised and managed by women local to the community. This relationship is routinely observed across MFI discourse . For instance, the Village Bank model sees the participation of lenders in the decision making body of the bank itself. Regular meetings are held and lenders are regarded as stakeholders (Chhay, 2011). The self-help group model (SHG) as deveolped in India consists of small groups of women who meet regularly to run the savingcs and loans cooperative. This model provides women with an organisational context for women to meet, learn about covernment policy and build social capacity within the community (Davidson and Sanyal, 2017; Sanyal, 2009).
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.
“Pedagogy which begins with the egoistic interest of the oppressors (an egoism cloaked in th false generosity of paternalism) and makes of the oppressed the objects of its humanitarianism, itself maintains and embodies oppression.”
Neoliberal approach to microfinance
Perhaps this is no where more
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
Milford Bateman in his book Why Doesn’t Microfinance Work?(2010) highlights some dangerous realities around microfinance supporting gender empowerment.
The first being that microfinance has moved women out of the formal work sector into managing their own enterprises, thus putting them at risk of being poorly paid and with poorer conditions. The second reality was that women were prioritised for loan approval as their aversion to shame and humiliation for defaulting on loans ensured they paid on time at any cost.
A third issue that Bateman points out is the paternalistic approach taken by many microfinance initiatives where male employees are preferenced over female employees to ensure high repayment is maintained.
Bateman is not alone in his critique of microfinance initiatives. 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, there is an observed relationship in Bangladeshi communities that suggest that women partcipating in microcredit programs are more likely to experience violence from their spousal partner (Schuler, Hashemi and Badal, 1998).
However, a closer analysis of this relationship reveals that family violence is more likely to be associated with the male partner holding more conservative gender ideologies rather than as a direct consequence of microcredit participation (Karim and Law, 2015).
Does this mean that microfinance as concept has no effect on women’s empowerment? Not so. The critiques by Aslanbeigui et al. and Bateman highlight the challenges of empowerment discourse in a culturally patriarchal nation. Financial empowerment alone doesn’t translate into shifts in culture and tradition. Consider also the alternative: that due to the connection of increased conflict and women’s participation in MFI’s, we therefore withdraw such programs from women. How then are women expected to achieve any form of empowerment. No project of social liberation whether based on race, gender or sexuality has ever occured through a peaceful transaction of power from those who have it, to those who don’t. Microfinance as a tool towards financial independence has never promised a peaceful path nor are recipients