Microfinance: Held to Account

Microfinance: Held to Account

"But microfinance is everywhere; it exists in the sub-terrain of almost everything in development. It is the panacea of choice." (Roy, 2010, p. 22)

Introduction

Only few recent ideas have generated as much enthusiasm for poverty alleviation in countries of the southern hemisphere as the idea of microfinance. It promises both the provision of cost- effective banking services to poor households and lifting people out of poverty through microenterprise development and self employment (Murdoch, 1998). Success stories, such as the granting of the Nobel Peace Prize to Muhammad Yunus and the Grameen Bank in 2006, are being broadcasted around the world. Rapid growth of the microfinance industry over the last three decades enabled it to now reach a large segment of the world’s poorest population and quick pledges made by donors and large Western corporations make it easy to surmise that programs will continue to expand in the following years. Although evidence for the role of microfinance in poverty alleviation remains highly contested, especially due to recent media coverage about suicides among borrowers (Biswas, 2010), advocates of these programs still insist on its continuation. Marguerite Robinson, author of The Microfinance Revolution, states that, despite ups and downs and some setbacks, “it seems like the idea of sustainable finance for the poor is here to stay” (MCS, 2001, p. 5). By having successfully established the key tenet that an estimated 2.7 billion poor people worldwide are in need of access to formal financial services (World Bank, 2011), the industry’s practices are almost exclusively criticized by positivist approaches without questioning its underlying assumptions. Due to its hegemonic appearance, it is reasonable to state that “microfinance is everywhere” (Roy, 2010, p. 22). This essay aims to question the concept of microfinance itself as being common sense. By adopting a poststructuralist attitude, it is possible to uncover and expose these reigning assumptions (Agarwal, 1996). In this sense, this analysis attempts to reveal this example of “establishment of truth” (Foucault, 1975, p. 184) because we not only govern others and ourselves according to these powerful truths but truth is also produced through the way we govern others and ourselves (Dean, 2010). The first section provides a brief overview of the extent to which microfinance has entered the global stage and afterwards, it tries to contextualize this idea within the emergence of advanced liberal government and millennial development. The subsequent section aims to show the hegemonic features of microfinance, especially through the control of knowledge through the CGAP initiative, before continuing with an in-depth study of different contradictions of empowerment as a major feature of microfinance. The final part summarizes the results by highlighting the mechanisms through which microfinance governs its recipients.

Microfinance as the ‘panacea of choice’

It is hard to find any other single practice in the field of development studies that has received that much attention and admiration over a comparable period of time. Since its emergence in the 1970s, commentators have tried to outdo each other in terms of its potential solutions to global problems. While some went as far to say that “microfinance is one of the most important economic phenomena since the advent of capitalism and Adam Smith” (Khosla as cited in Roy, 2010, p. 1), most commentators, such as Jeffrey Sachs (Kiva, 2011) and Paul Wolfowitz (Ilcan & Lacey, 2011), claim that it is a wonderful tool to reduce poverty and empower poor people. The broad consensus on microfinance as an accepted practice to meet the poor’s need for financial services reaches across comletely different political camps. It has become an everybody‘s darling for Western development practitioners, international NGOs, the Western banking industry, aid icon figures (Gates, Bono, Sachs), and authors highly critical of development aid, such as Dambisa Moyo and William Easterly (Roy, 2010). Before it is possible to grasp the hegemonic status of microfinance by examining its ‘genealogy’ (Dean, 2010), it is necessary to define the concept itself. Due to the lack of a widely accepted consistent definition, it is reasonable to employ a broad definition of ‘microfinance’. According to Karlan and Goldberg (2007), microfinance is the provision of small-scale financial services to people who lack access to traditional banking services. Broadly speaking, the term microfinance usually implies very small loans to low-income clients for self- employment, if it takes the form of microcredit, but microfinance by its name is clearly about more than just credit because it can also include saving, insurance, remittance or other financial products. The existing disagreement in the literature about different issues such the definition of target groups or the requirement for self-sufficiency will not be relevant for this essay due to the broad context of analysis. The latest data shows that these loans to 128.2 million clients affect a total number of 641.1 million people, including both clients and family members, representing a number greater than the population of the European Union and Russia combined (MSC, 2011). These loans were provided by 3,589 different microcredit institutions. Therefore, one can conduct that the global impact of microcredit programs is no longer micro. It is shaping the conduct of an increasing number of people in the Global South, mainly women who represent more than 81.7 percent of the clients. Due to the promising goals of the microfinance movement, claiming that it is an important tool to empower the poor, especially women, and lift them out of poverty, the powerful idea of microfinance can be seen as another striking example of development as “the management of a promise” (Pieterse, 2001, as cited in Roy, 2010, p. 40). How does it come to happen that “microfinance is everywhere” (Roy, 2010, p. 22)?

In order to reveal the genealogy of this practice, one needs to grasp the wider context that enabled its emergence, namely the concepts of advanced liberal government and millennial development. Ilcan and Lacey (2011) show that during the late twentieth and early twenty- first centuries, the world, including both the advanced industrial countries and low-income countries, experienced the withdrawal of the states from many welfare programs. The social component, more precisely social welfare schemes and the provision of public resources, of the majority of liberal social governments was increasingly abandoned. At the same time, individual and private responsibilities were re-emphasized, including the privatization of public goods, such as health and pension schemes or growing concentration on corporate responsibilities. This new regime of governance represents what Dean (2010) identified as “advanced liberal government” (p. 194). It is not a political ideology but rather a certain style of government, involving the deployment of various technologies and being exercised through power that circulates throughout a network of relations (Foucault, 1975). One of the main characteristics of advanced liberal government, the described efforts of privatizing responsibilities, can especially be traced in the field of development practice, in this case microfinance (Ilcan & Lacey, 2011). During the 1980s, the development apparatus, such as the World Bank and the IMF, mainly identified poverty as a problem of unprogressive national economies that had to be modernized by grand strategies such as structural adjustment programmes and guided by the Washington Consensus. In the 1990s, in the wake of the recognition that these policies widely failed, practices mainly centred around solutions that addressed poverty reduction more directly through the correction of market failures that hampered potential economic activities of the so-called ‘bottom billion’. The focus had shifted to solutions for different market failures, such as global trade inequalities and in the case of microfinance, the failure of credit markets.

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