Independent research for global prosperity
CGAP's main blog just posted another contribution from me summarizing a chapter of my book. This one is on chapter 7, which evaluates microfinance from the "development as freedom" perspective.
In sum, I see financial services as inherently empowering—after all, they exist to help people manage their financial affairs—but not automatically so.
Ramesh Arunachalam's blog is following and commenting on the Andhra Pradesh microcredit crisis in detail. At least for an American outsider like me, the blog is a bit awkward and disorienting---there is no explanation of who the "Indian Micro-Finance Blog Team and Ramesh Arunachalam" are. But if you persist in perusing, you'll find content found nowhere else. It seems as if the author(s) come from the microfinance industry and yet are quick to criticize it, which gives them credibility.
2009 brought an embarrassment of riches in readings on the impacts of microfinance: Portfolios of the Poor, two randomized studies of microcredit and one
CGAP's ever-thoughtful Kate McKee blogs:
Chapter 7 of my book analyzes the impacts microfinance through Amartya Sen's definition of "development as freedom." It focuses on credit, the financial service whose impacts on freedom are most ambiguous. Perusing the thoughtful commentary on the blog post for the chapter draft, I was struck by how most of it deals in concepts.
It's been almost four months since I posted a chapter draft (chapter 4). Now I'm posting chapter 7 (in Word format pdf). [Update: added quotes from CARE studies in Bangladesh.] So I have some explaining to do.
In my writing now, I am sorting through lines of thought on how microlender behavior enhances or reduces the freedom of poor borrowers---freedom in Amartya Sen's definition, as agency in one's own life. The oldest strand here is that of "usury," the idea that charging interest above some level (maybe zero) is unjust, akin to the full-bellied selling food to the starving for a profit. As you probably know, the Compartamos IPO revived within the microfinance world the ancient debate over usury.
Because of circumstances beyond their control (sickness, flood, drought, theft and so on), lack of skills and knowledge or taking bad decisions, a proportion of poor borrowers encounter great difficulties in repaying loans. While MFIs [microfinance institutions] suggest that such problems are overcome through ‘social support’ in some painless way this is often not the case---talk to the dropouts of MFIs!
One perspective through which I am judging microfinance is Amartya Sen's notion of development as freedom. What do we know about when microfinance gives people more agency in their lives and when it, contrarily, reduces their control over their circumstances (the main worry being debt traps)? With regard to microfinance, "empowerment" usually refers specifically to helping women break the bonds of sexism within their families and societies.
