I get asked a lot about whether I think micro-credit can help save the Global South. The article I most often send people to is Walden Bello’s fine summary in The Nation, written in 2006 on the occasion of Mohammed Yunus’ receipt of the Nobel Peace Prize. In short: micro-credit is a great way to survive poverty, but a poor way to beat its structural causes, or to address the relations of power the produce it in the first place. People in the Global North are generally surprised to learn the interest rates on micro-credit loans – between 20-70% from the more reputable lenders – and a new article in Outlook India is a reminder that it’s not the interest rate that kills, it’s the people who break down the door demanding repayment.
Though the avowed intention of MFIS and banks providing microcredit is to help small borrowers, there is increasing evidence to show its cumbersome processes are forcing landless farmers and traders to seek out the traditional moneylender. On the flip side, loan beneficiaries often face undue pressures. Last month, over 1,000 women members of 50 self-help groups in Bhubaneswar protested against the high interest charged by MFIS (microfinance institutions). The first farmer suicide in drought-hit West Bengal this year is also traced to the harassment over loan repayment.
4 Replies to “FYI: Is it Micro Usury?”
Jct: Yunus’ Grameen Bank getting a Nobel Prize for micro-lending at 20%-70% usury sure cinches the claim that Turmel’s UNILETS Timebank will get a Nobel Prize for macro-lending at 0% usury.
Yes indeed, this is “Micro Usary.” It is yet another fraud to further enslave the poor peoples of the world. It is the same ravenous wolf slightly changing costumes.
The entire world financial system from the top to the bottom is corrupt beyond human comprehension. Many are finally starting to awaken to this fact having been beaten and robbed in broad daylight by violent psychotics in snappy three piece suits and, as the ongoing squeeze tightens, more of the slaves will awaken to their bondage.
This awakening is necessary before anything at all can be done to correct the situtaion. A “fix” will not do this time. A TOTAL AND COMPLETE MAKEOVER is required. And this total and complete makeover must be based around the most BASIC HUMAN RIGHTS. No more bandaides for the great sucking chest wound called the “World Economy.” The entire thing is a HOAX on behalf ot the self-assumed Masters of Money and War that only exist due to a highly successful SCAM which has duped the world’s people into misplaced trust. And, as that trust rapidly erodes, the Police State rises to insure “security” for the despots at the top of the $$$ Pyramid of Total Control.
Thanks for that article Raj. I’ve read a lot on Microcredit but never actually seen anything by Bello.
As appropriate as it is to point out the inadequacy of microcredit (particularly given the increasingly overemphasised nature of it in development circles) I fear this article really does not go far enough. Bello gets to the point which needs to be expanded towards the end of his article: “Viewed broadly, microcredit can be seen as the safety net for millions of people destabilized by the large-scale macro-failures engendered by structural adjustment.”
This is where the real discussion and critique of this growing industry should begin. Built intricately into the core of the Microcredit philosophy are the same premises at the heart of neoclassical economics: the individual is a rational actor; competition is essential not only for economic growth but also for poverty reduction; economic expansion has always been the result of individual initiative; individual responsibility is key to undermining poverty because it breaks the nexus of dependency and welfarism to which many of the poor have become accustomed. Applied to a post-Stuctural Adjustment context this ideology essentially blocks the winding back of those reforms by an extension of the same logic.
The best author I have found on this stuff is Milford Bateman. He released a book earlier this year (‘Why Doesn’t Microcredit Work?’) which traces the linkages between neoliberal ideology and microcredit and reveals how microcredit is essentially a way of buying people out who have a legitimate reason to be angry with both the international financial institutions and their local governments for policies of the past and present. Furthermore, as Bateman illustrates, far from providing for the expansion of an economy capable of providing jobs and the necessary productive capacity to eliminate poverty, microcredit is resulting in what has been termed the ‘Africanisation’ of economies – the downgrading from larger businesses with workforces capable of unionising and struggling collectively to tens of thousands of petty traders and sellers who often undermine other more sustainable sectors of the economy. In different parts of the world such investments have detracted from real sectors of the economy capable of growth and providing essential services and jobs and diverted investment into petty-traders. But we all know that ‘development’ of economies over the past 200 years has never been based on small scale trading or even small scale production. Growth is fostered through large-scale centralised investments into particular sectors of the economy. This is the way much of Africa was headed following decolonisation – until the debt crisis undermined that – and it is still the way much of the world needs to go. By providing industries and services capable of sustaining a domestic economy you not only get the necessary resources to take care of a population over the long term, but you also have a coordinated system of production which can be better managed through the inevitable booms and busts of the international economy. Microcredit both fails to provide this and actually undermines it. Providing high-interest loans to various families at different levels of poverty may help them smooth their income levels and thereby lessen the effects of poverty. But for the most part these investments will be in largely unproductive enterprises such as basket weaving, petty commodity sales etc. – hardly the sectors of the economy in need of development or capable of providing a safety net.
One example that Bateman has illustrated highlights how this can happen.
In parts of the former Yugoslavia Bateman has shown how industries such as the dairy industry have been decimated by the mass issuing of microloans. One of the major investments these have gone into is the purchasing of a single cow for a family. They then sell that milk with the hope of attaining enough capital to pay back their loan and survive (rarely extending their investment). But structurally this resulted in a de-centered dairy system which pushed prices down and undermined the earlier dairy industry – an industry which provided jobs. Of course, after losing their jobs these workers had little other choice than to go to a financial institution and take out a microloan. The result has been the destabilisation of a domestic industry and an atomisation of a workforce which once shared identical structural interests in the struggle around wages and other worker rights. Many of these people are now (economically speaking) directly in competition with each other.
Walden Bello, by suggesting that there is a fundamental achievement behind Yunus’ award, concedes the battleground to the enemy. Yunus’ achievement is not in providing a workable alternative to past policies of neoliberal ideology. His achievement is precisely in reconfiguring the same logic which undergirded those approaches into something with a popular face – something that makes many feel all warm and happy inside, but which unfortunately is further entrenching the logic of the market as the fundamental determinant of production and modern living. Neocons like Wolfowitz and more left of centre liberals may often share a real interest in eradicating the devastation of global poverty – but if they accept the same premises that resulted in that poverty then their concern will make only themselves feel better.
The terms of the debate need to be shifted a long way before a real alternative for solidarity with the global poor can be put on the table and forced by internationally-aligned social movements. Microcredit appeals to so many because it suggests that the desire for justice and an end to poverty can be removed from its political context and happen in a world which exists only in the minds of neoclassical economists.
Agree totally with Raj that microfinance is a serious subject. There are very serious problems with microfinance as development policy and especially in relation to agriculture. Just look at the ongoing microfinacne sector meltdown taking place in Andhra Pradesh as we speak, at least partly the result of the Wall Street-style greed on the part of those saying they are ‘concerned for the poor’ but who are mainly concerned to make huge fortunes for themselves. Yet microfinance remains so powerful today because of its political-ideological serviceability.
Just to correct the title given for my recent book by David Robertson; it is ‘Why Doesn’t Microfinance Work? The Destructive Rise of Local Neoliberalism’ and its out with Zed Books.
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