Microcredit,
Macro Problems
By Walden Bello
17 October, 2006
The Nation
The
awarding of the Nobel Peace Prize to Muhammad Yunus, regarded as the
father of microcredit,
comes at a time when microcredit has become something like a religion
to many of the powerful, rich and famous. Hillary Clinton regularly
speaks about going to Bangladesh, Yunus's homeland, and being "inspired
by the power of these loans to enable even the poorest of women to start
businesses, lifting their families--and their communities--out of poverty."
Like the liberal Clinton,
the neocon Paul Wolfowitz, now president of the World Bank, has also
gotten religion, after a recent trip to the Indian state of Andhra Pradesh.
With the fervor of the convert, he talks about the "transforming
power" of microfinance: "I thought maybe this was just one
successful project in one village, but then I went to the next village
and it was the same story. That evening, I met with more than a hundred
women leaders from self-help groups, and I realized this program was
opening opportunities for poor women and their families in an entire
state of 75 million people."
There is no doubt that Yunus,
a Bangladeshi economist, came up with a winning idea that has transformed
the lives of many millions of poor women, and perhaps for that alone,
he deserves the Nobel Prize. But Yunus--at least the young Yunus, who
did not have the support of global institutions when he started out--did
not see his Grameen Bank as a panacea. Others, like the World Bank and
the United Nations, elevated it to that status (and, some say, convinced
Yunus it was a panacea), and microcredit is now presented as a relatively
painless approach to development. Through its dynamics of collective
responsibility for repayment by a group of women borrowers, microcredit
has indeed allowed many poor women to roll back pervasive poverty. However,
it is mainly the moderately poor rather than the very poor who benefit,
and not very many can claim they have permanently left the instability
of poverty. Likewise, not many would claim that the degree of self-sufficiency
and the ability to send children to school afforded by microcredit are
indicators of their graduating to middle-class prosperity. As economic
journalist Gina Neff notes,
"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."
Indeed, one of those who
have thoroughly studied the phenomenon, Thomas Dichter, says
that the idea that microfinance allows its recipients to graduate from
poverty to entrepreneurship is inflated. He sketches out the dynamics
of microcredit: "It emerges that the clients with the most experience
got started using their own resources, and though they have not progressed
very far--they cannot because the market is just too limited--they have
enough turnover to keep buying and selling, and probably would have
with or without the microcredit. For them the loans are often diverted
to consumption since they can use the relatively large lump sum of the
loan, a luxury they do not come by in their daily turnover." He
concludes: "Definitely, microcredit has not done what the majority
of microcredit enthusiasts claim it can do--function as capital aimed
at increasing the returns to a business activity."
And so the great microcredit
paradox that, as Dichter puts it, "the poorest people can do little
productive with the credit, and the ones who 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, but it is not the key to development,
which involves not only massive capital-intensive, state-directed investments
to build industries but also an assault on the structures of inequality
such as concentrated land ownership that systematically deprive the
poor of resources to escape poverty. Microcredit schemes end up coexisting
with these entrenched structures, serving as a safety net for people
excluded and marginalized by them, but not transforming them. No, Paul
Wolfowitz, microcredit is not the key to ending poverty among the 75
million people in Andhra Pradesh. Dream on.
Perhaps one of the reasons
there is such enthusiasm for microcredit in establishment circles these
days is that it is a market-based mechanism that has enjoyed some success
where other market-based programs have crashed. Structural-adjustment
programs promoting trade liberalization, deregulation and privatization
have brought greater poverty and inequality to most parts of the developing
world over the last quarter century, and have made economic stagnation
a permanent condition. Many of the same institutions that pushed and
are continuing to push these failed macro programs (sometimes under
new labels like "Poverty Reduction Strategy Papers"), like
the World Bank, are often the same institutions pushing microcredit
programs. 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.
There have been gains in
poverty reduction in a few places--like China, where, contrary to the
myth, state-directed macro policies, not microcredit, have been central
to lifting an estimated 120 million Chinese from poverty.
So probably the best way
we can honor Muhammad Yunus is to say, Yes, he deserves the Nobel Prize
for helping so many women cope with poverty. His boosters discredit
this great honor and engage in hyperbole when they claim he has invented
a new compassionate form of capitalism--social capitalism, or "social
entrepreneurship"--that will be the magic bullet to end poverty
and promote development.
Walden Bello
is professor of sociology and public administration at the University
of the Philippines and executive director of Focus on the Global South,
a research and advocacy institute based at Chulalongkorn University
in Bangkok. He is the author or co-author of many books on politics
and economic issues in the Philippines and Asia, including, most recently,
Deglobalization
(Zed), and recipient of the 2003 Right Livelihood Award also known
as the "Alternative Nobel Prize."
© 2006 The Nation
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