Microcredit, the Dream and the Reality |
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| Written by David Mandelzys |
| Tuesday, 25 March 2008 19:00 |
The Dream Those involved in international development often live in a dreamworld. Lately, that dreamworld has morphed into a twisted delusion that has gained a religious-like following. The delusion is that capitalism, rather than being the cause of inequality and poverty, is actually what the impoverished population of the world is missing. Dreamt up by a now famous economist named Mohammed Yunis, microcredit has become the new buzz word of international development. As discussed by Ayat Ahmed in an article in December’s (Cult)ure Magazine , microcredit is a type of instrument that provides small loans to impoverished people who would otherwise not have access to financing. Mohammed Yunis developed and popularized this form of financing by founding the Grameen bank, a microcredit institution that began in 1976 in Bangladesh. The heralding of microcredit as the key to solving poverty has happened mostly in the last decade, marked by the MicroCredit Summit in 1997, the United Nations year of Microcredit in 2005, and the awarding of the Nobel Peace prize to Dr. Yunis in 2006 for his work with the poor and the creation of the Grameen Bank. So why all the hype?
Microcredit does not challenge local hierarchies Amongst the microcredit proponents, providing finance to the poor is the magic bullet that will solve poverty, making it unnecessary to question existing inequality since the overall economic pie will simply grow as the poor create their own share of wealth and leave existing wealth in the few hands who already hold it. For example, in Bangladesh, where microcredit originated, loans to the poor force no one to recognize that during the 1990s and into the 2000s (while the overall economy grew), “especially large” increases in inequality took place, which has been proven to “damp the poverty reducing impact of a given amount of growth,” to quote one study. Likewise, in India, home of the largest microcredit institutions, providing loans to the poor in no way necessitates recognizing, dealing with, or resolving discrimination that still stems from the caste system, resulting in extreme poverty afflicting the lower castes while the upper and middle castes benefit from economic growth. Similarly, in the US, where organizations are now providing microcredit loans to the so-called ‘urban poor’, there is no recognition that the top 10% of society owns 69.8% of the wealth . There is also no acknowledgement of the structural problems that keep this wealth distribution in place and that pushing credit to the poor has been done for many, many years – nothing new or novel. In Canada, moreover, where microcredit is now being promoted as a solution to poverty in First Nations communities, the loans, supported by the Canadian government itself, obscures recognition of the genocidal and colonial relationship between the Canadian state and the native people that is at the root of reserve poverty in the first place. Thus, it is no surprise that there are no objections to microcredit from the wealthy in the United States and Bangladesh, the top castes in India, and the government in Canada, all of whom are able to maintain their positions as oppressors in their respective localized hierarchies, whilst feeling good about it by providing credit to the poor. Microcredit reinforces the capitalist myth of development
The ladder will eventually be climbed by all as long as populations are enterprising and as few limits as possible exist on private enterprises and the movement of capital. Westerners, of course, believe that this is the formula they followed to create the economic powerhouses their countries are today. But this view completely ignores the protectionist policies that allowed domestic industries to bloom, the theft of technology that allowed for its modernization, and the hard-won labour rights and social safety nets that decreased inequality. With the key ingredients of real development ignored, this development myth has been forced upon the developing world, especially since the rise of neo-liberalism . With this myth in place, the West asserts that capitalism has the power to make the poor wealthy, which is exactly the premise of microcredit. Microcredit advocates that what is needed to lift the poor out of poverty is simply the right formula to release their entrepreneurial spirit and slowly facilitate their climb up the capitalist ladder towards economic success. Under this premise, it becomes possible for the West and the rest to be partners in eliminating poverty through microcredit without recognizing the harm of neo-liberal regimes imposed by the west. This harm stems from the institutions that make the impoverished world a playground for multinational corporations so that these can exploit cheap labour and cheap resources without feeding any of the profits back into the states where the wealth was extracted from. Hence, the World Bank and it’s former president, the Reaganite Paul Wolfowitz, are able to happily back Microcredit – even funding the scheme to a tune of $1.2 billion annually for loans and financial infrastructure. Microcredit provides opportunity for profit, exploitation and control
In India, where Monsanto is particularly active thanks to patent laws and neoliberalization, the debt held by these farmers has become so bad that suicides have been taking place on an unprecedented scale. Yet, Yunus and his Grameen Bank decided it was somehow wise to negotiate a deal to make this Monsanto a partner to “save the poor” and give them further access to poor farmers who can accrue even more credit to buy Monsanto products. Thankfully, due to public outrage led by Indian activist Vandana Shiva, this partnership eventually fell through. But the precedent for exploitation is now set. Monsanto is not alone in using microcredit and market monopoly to exploit the poor; UniLever (maker of Lever soaps), for example, has used microcredit to turn women who had formerly been producers and sellers of their products into hawkers of Levers detergent products , robbing these women of their productive capacities. Traditional banks and other newly formed financial institutions are also entering the market now, claiming that the Grameen not-for-profit model is unsustainable and that the only way for microcredit to work is to do it for profit. About those successes…what reasons are used to keep the dream alive? When the advocates of microcredit brag of its success they don’t discuss appeasement of the global elites’ primary interests of maintaining local hierarchies, reinforcing the capitalist myth of development and providing new ways to profit from, exploit, and control the world’s poor. So what do Yunus’ disciples brag about? Let’s take December’s pro-microcredit (Cult)ure Magazine article as an example. That article, entitled “Micro-Financing: Scrapping Old Notions of Development,” does a good job pointing out that past development schemes have failed, but provides little evidence that microcredit is successful. Additionally, the evidence of success that is provided is proof of success only if one is looking through the eyes of the lender. For example, Ahmed points out that the Grameen Bank has provided loans to seven million borrowers, that Grameen has a 98% payback rate, and that microcredit lending has been spread to over 40 countries. Ignoring the fact that the financial viability of microcredit organizations is undetachable from the billions of dollars in liquidity provided by the World Bank and other institutions, Ahmed sure does make microcredit sound like a great business for lenders. But then again, so is providing high interest credit cards to the poor as we do in the West, and I don’t think Ahmed would suggest that this seedy business is a solution to Western poverty. So how has microcredit worked from the point of view of the borrowers? This perspective is rarely reported, likely because there are few serious studies that look at the impact of microcredit on the poor households that receive loans, and because there have been few long term economic changes that can be attributed to the microcredit movement, despite it being around for over 30 years now. Moreover, the lack of solid evidence about microcredit’s success from the eyes of the borrowers may also be explained by the difficulty in differentiating microcredit from the informal credit sector that has always existed and consists of friends, families and communities that have always gotten together to provide loans. Dream versus reality: what we do know As reported in 1998, “after 8 years of borrowing, 55% of Grameen households still aren't able to meet their basic nutritional needs – so many women are using their loans to buy food rather than invest in business...¨ So much for providing a permanent path out of poverty. We also know that despite all the talk of microcredit empowering the poor, incredibly disempowering methods have been used to ensure repayment of loans, such as removing tin roofs off people’s homes , and pressuring survivors of natural disasters (like the recent Sidr cyclone in Bangladesh) to immediately resume repayments, even though they had just lost everything. So much for empowering the poor, and treating them as partners rather than slaves. We also know that despite all the talk of lending to women, microcredit has not dismantled the gendered hierarchy women face, and has been used in some cases to oppress women, such as with Grameen Bangladesh, where microcredit has “worked against women's solidarity and contributed heavily to the inflation of dowry.” So much for empowering women and improving women’s rights. This is all on top of the larger global picture, where poverty and inequality (which go hand in hand) are as rampant as ever, where we know that “income inequality has reached near record levels in many countries”, and where we know that “the distribution of the world’s wealth — things like stocks, bonds or physical assets like land — has become even more narrowly concentrated than income.” Wake up! Microcredit is a solution that attempts to treat poverty as a disease in a vacuum rather than a symptom of oppression in a hierarchical world. There are people who gain from this global economic and political hierarchy, where 80% of the world’s wealth is controlled by 1% of the world’s population. Any system that ignores the active element of poverty – that is, the people who work to keep others extremely poor in order to ensure that they themselves stay extremely rich – cannot be effectual. The Grameen Bank and other microfinancing institutions and programs not only ignore the key cause of poverty, but also more deeply embeds the system that makes this possible, which helps to explain why the likes of Monsanto and the World Bank are so eager to jump onboard. The dream of a world where poverty has been eliminated through microcredit is just that – a dream with no basis in reality. Said best by activist Vandana Shiva “rights cannot be substituted for credit,” and those truly interested in solving the structural problems that have led to so few rich accruing wealth on the backs of so many poor, need to confront hierarchy, question capitalism, and wake up to the reality this article has tried to illuminate.
© 2008 David Mandelzys; licensee (Cult)ure Magazine.
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Comments (3)
Interesting but flawed
Hi David,
Interesting But Flawed
Interesting but flawed
Are microlenders “sucking blood from the poor in the name of poverty alleviation?”
Hi Alicia, |
Since the milestone of Mr. Yunis accepting the Nobel Peace prize, the hype around microcredit has reached a feverish pitch with the World Bank, International Monetary Fund, aid agencies and NGOs all getting involved, hoping to ensure that anyone who is poor has access to a tiny loan. Microcredit has many big name backers. In the United States, for example, microcredit is a bipartisan-backed notion, with Democrats and Republicans teaming up to promote it. And US Democratic presidential candidates Barak Obama and Hilary Clinton have both declared allegiance to microcredit. This is also true for the current Republican President George W. Bush, who seems to think that microcredit will enable small third world farmers to compete on international markets with US agribusinesses. Microcredit has received similar support from politicians around the globe, as well as media, academics and celebrities. But why is there so much support for microcredit? This is the interesting question that is never asked.
The majority of people living in the rich world have no idea why their states are so wealthy while others are so poor. There is a myth that has been substituted for facts: there is a development cycle that sees states go from poor to rich by climbing the economic ladder – firstly, by exploiting their cheap labour and then slowly raising their populations out of poverty.
June 25th, 1998, should be remembered as an infamous date in microcredit history. This is the day when Mohamed Yunus announced a deal he had brokered with the multinational firm Monsanto regarding a joint microcredit venture known as the Grameen-Monsanto center. Monsanto is known for producing genetically modified terminator seeds that require more chemicals than native varieties, and destroy the ability of traditional family-based farms to earn a livelihood because of the high cost of the chemicals and of replacing the seeds annually. Monsanto sells its seeds to farmers who use credit to buy them.
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