[October 28th event recap written by Julie Menezes]
Microfinance: Not all it’s cracked up to be… Or is it?
A Bangladesh case study on the positive and negative cultural effects of microfinance.
The SVMN event on October 28th featured guest speaker Ananya Roy, Professor of City and Regional Planning at UC Berkeley and Education Director at the Blum Center of Developing Economies. Roy spoke about the research that led to her most recent book, Poverty Capital: Microfinance and the Making of Development.
“Can bottom-billion capitalism end up red-lining the bottom billion?”
Roy discussed two different models of microfinance:
- Microfinance as a global industry
- Microfinance embedded in social and human development (“Microfinance Plus”)
If microfinance is viewed as a global industry, this solicits several questions – does microfinance run the risk of becoming yet another predatory business? Can bottom-billion capitalism end up red-lining the bottom billion? Does microfinance plus run the risk of becoming another beaurocracy with a paternalistic relationship with the poor? Many are opposed to profit-making microfinance as a distortion of values and government structures.
Roy illustrated that many institutions are originally formed for organization of the poor, but later turn into MFI’s. These organizations started out in development, and were not originally financial institutions. Their goal is to serve the poor, not to make a profit. These institutions are not grassroots organizations – scale, size, and power are important factors- and they serve millions in Bangladesh.
In studying three of the largest MFI’s in Bangladesh (Grameen, ASA and BRAC), Roy came to the conclusion that while microfinance remains an important aspect of development work in Bangladesh, there is a lot more to the story. These institutions focus on savings as well as credit. Obligatory savings are included in Grameen loans. This allows the poor to manage risk, smooth consumption and deal with disaster. A focus on savings also allows MFI’s to manage risk. The role of microfinance is not necessarily to allow the poor to set up micro-enterprises, but to allow for consumption smoothing, and to help the poor build up economic assets.
Roy discussed how microfinance in Bangladesh resembles social protection programs that exist in other parts of the world. She states that Bangladeshi microfinance institutions are not only banks, but “pro-poor” service delivery institutions. Development organizations build the infrastructure that allows the social protection programs to work, and provide proof of concept that puts pressure on the state to build infrastructure as well.
Roy also addressed the question of whether microfinance empowers women, or is in fact a new form of patriarchy. An estimated 70% of the world’s extreme poor are women. Some argue that microfinance programs increase the burden and responsibility of poor women, or question whether women are actually in control of the loans. Yet in conclusion, Roy argues that obtaining business loans increases the status of women in the household, regardless of whether or not they control the money.