Thursday, 23 November 2006

'Philanthropreneurs' - rethinking the microcredit "miracle".

Microcredit, Macro Problems
by Walden Bello

The awarding of the Nobel Peace Prize to Muhammad Yunus, regarded as thefather of microcredit, comes at a time when microcredit has becomesomething like a religion to many of the powerful, rich and famous.Hillary Clinton regularly speaks about going to Bangladesh, Yunus'shomeland, and being "inspired by the power of these loans to enable eventhe poorest of women to start businesses, lifting their families--andtheir communities--out of poverty."

Like the liberal Clinton, the neocon Paul Wolfowitz, now president ofthe World Bank, has also gotten religion, after a recent trip to theIndian state of Andhra Pradesh. With the fervor of the convert, he talksabout the "transforming power" of microfinance: "I thought maybe thiswas just one successful project in one village, but then I went to thenext village and it was the same story. That evening, I met with morethan a hundred women leaders from self-help groups, and I realized thisprogram was opening opportunities for poor women and their families inan entire state of 75 million people."

There is no doubt that Yunus, a Bangladeshi economist, came up with awinning idea that has transformed the lives of many millions of poorwomen, and perhaps for that alone, he deserves the Nobel Prize. ButYunus--at least the young Yunus, who did not have the support of globalinstitutions when he started out--did not see his Grameen Bank as apanacea. Others, like the World Bank and the United Nations, elevated itto that status (and, some say, convinced Yunus it was a panacea), andmicrocredit is now presented as a relatively painless approach todevelopment. Through its dynamics of collective responsibility forrepayment by a group of women borrowers, microcredit has indeed allowedmany poor women to roll back pervasive poverty. However, it is mainlythe moderately poor rather than the very poor who benefit, and not verymany can claim they have permanently left the instability of poverty.Likewise, not many would claim that the degree of self-sufficiency andthe ability to send children to school afforded by microcredit areindicators of their graduating to middle-class prosperity. As economicjournalist Gina Neff notes, "after 8 years of borrowing, 55% of Grameenhouseholds still aren't able to meet their basic nutritional needs--somany women are using their loans to buy food rather than invest inbusiness."

Indeed, one of those who have thoroughly studied the phenomenon, ThomasDichter, says that the idea that microfinance allows its recipients tograduate from poverty to entrepreneurship is inflated. He sketches outthe dynamics of microcredit: "It emerges that the clients with the mostexperience got started using their own resources, and though they havenot progressed very far--they cannot because the market is just toolimited--they have enough turnover to keep buying and selling, andprobably would have with or without the microcredit. For them the loansare often diverted to consumption since they can use the relativelylarge lump sum of the loan, a luxury they do not come by in their dailyturnover." He concludes: "Definitely, microcredit has not done what themajority of microcredit enthusiasts claim it can do--function as capitalaimed at increasing the returns to a business activity."

And so the great microcredit paradox that, as Dichter puts it, "thepoorest people can do little productive with the credit, and the oneswho can do the most with it are those who don't really need microcredit,but larger amounts with different (often longer) credit terms."

In other words, microcredit is a great tool as a survival strategy, butit is not the key to development, which involves not only massivecapital-intensive, state-directed investments to build industries butalso an assault on the structures of inequality such as concentratedland ownership that systematically deprive the poor of resources toescape poverty. Microcredit schemes end up coexisting with theseentrenched structures, serving as a safety net for people excluded andmarginalized by them, but not transforming them. No, Paul Wolfowitz,microcredit is not the key to ending poverty among the 75 million peoplein Andhra Pradesh.

Dream on.

Perhaps one of the reasons there is such enthusiasm for microcredit inestablishment circles these days is that it is a market-based mechanismthat has enjoyed some success where other market-based programs havecrashed. Structural-adjustment programs promoting trade liberalization,deregulation and privatization have brought greater poverty andinequality to most parts of the developing world over the last quartercentury, and have made economic stagnation a permanent condition. Manyof the same institutions that pushed and are continuing to push thesefailed macro programs (sometimes under new labels like "PovertyReduction Strategy Papers"), like the World Bank, are often the sameinstitutions pushing microcredit programs. Viewed broadly, microcreditcan be seen as the safety net for millions of people destabilized by thelarge-scale macro-failures engendered by structural adjustment.

There have been gains in poverty reduction in a few places--like China,where, contrary to the myth, state-directed macro policies, notmicrocredit, have been central to lifting an estimated 120 millionChinese from poverty.

So probably the best way we can honor Muhammad Yunus is to say, Yes, hedeserves the Nobel Prize for helping so many women cope with poverty.His boosters discredit this great honor and engage in hyperbole whenthey claim he has invented a new compassionate form ofcapitalism--social capitalism, or "social entrepreneurship"--that willbe the magic bullet to end poverty and promote development.

Walden Bello is professor of sociology and public administration at theUniversity of the Philippines and executive director of Focus on theGlobal South, a research and advocacy institute based at ChulalongkornUniversity in Bangkok. He is the author or co-author of many books onpolitics and economic issues in the Philippines and Asia, including,most recently, Deglobalization (Zed), and recipient of the 2003 RightLivelihood Award also known as the "Alternative Nobel Prize."

© 2006 The Nation

Vanmala Hiranandani, PhD, MSW
Assistant Professor
School of Social Work
Dalhousie University
6420 Coburg Road
Halifax, NS B3H 2A7


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