Seduced and Betrayed

economics • anthropology bateman
maclean
• Seduced and Betrayed
milford bateman is school for advanced research advanced seminar series
a Visiting Professor of
economics in the Faculty
EXPOSING THE CONTEMPOR ARY
of Economics and
Tourism at Juraj Dobrila
MICROFINANCE PHENOMENON
University of Pula and
an adjunct professor
in international devel- Microfinance, the disbursement of tiny loans to the
opment studies at Saint poor so that they can undertake income-generating
Seduced and Betrayed

Mary’s University.
activities, is the most popular international develop-
kate maclean is a
Senior Lecturer in the
ment policy of recent years. The contributors to this
Department of Geo- multidisciplinary volume consider the origins and out-
graphy, Environment
and Development comes of microfinance from a variety of perspectives
Studies at Birkbeck, and contend that it has not been a successful approach
University of London. Edited by Milford Bateman and Kate Maclean Foreword by James K. Galbraith
to development.
Over the last twenty years, the contributors note, micro-
finance policies have exacerbated poverty and exclusion,
undermined gender empowerment, underpinned a mas-
sive growth in inequality, destroyed solidarity and trust,
and, overall, manifestly weakened those local economies
contributors
of the global South in which it has reached critical mass.
Domen Bajde By exploring historically successful alternatives that
Milford Bateman
deploy “collective capabilities”—including cooperatives,
Maren Duvendack
Carla Freeman credit unions, and state-led development strategies—the
Charlotte Heales book brings the politicized nature of microfinance into
Lamia Karim
Meena Khandelwal sharp relief. The authors expose the intimate relationship
Kate Maclean between neoliberalism and microfinance as the overarch-
Philip Mader
Jessica Gordon ing rationale that keeps the microfinance model alive in
Nembhard spite of all the evidence of its failure.
Sonja Novković
Kasia Paprocki This timely and comprehensive analysis, founded on
Elliott Prasse-Freeman qualitative anthropological research, unpacks the ideas
Khadija Sharife
Dean Sinković
and values that have allowed microfinance to “seduce”
Marcus Taylor the world and blind so many to its corrosive effects.
isbn 978-0-8263-5796-0
90000
university of new mexico press
unmpress.com • 800-249-7737 9 780826 357960 > school for advanced research advanced seminar series
School for Advanced Research
Advanced Seminar Series
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General Editor
Since 1970 the School for Advanced Research

(formerly the School of American Research)
and SAR Press have published over one hundred
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volumes arise from seminars held on SAR’s
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Seduced and
Betrayed
Exposing the Contemporary
Microfinance Phenomenon
Edited by Milford Bateman and Kate Maclean

Foreword by James K. Galbraith
School for Advanced Research Press • Santa Fe

University of New Mexico Press • Albuquerque
© 2017 by the School for Advanced Research
All rights reserved. Published 2017
Printed in the United States of America
22 21 20 19 18 17 1 2 3 4 5 6
Library of Congress Cataloging-in-Publication Data

Names: Bateman, Milford, editor. | Maclean,
Kate, editor.
Title: Seduced and betrayed : exposing the
contemporary microfinance phenomenon /
edited by Milford Bateman and Kate Maclean ;
foreword by James K. Galbraith.
Description: Santa Fe : School for Advanced
Research Press ; Albuquerque : University of
New Mexico Press, 2017. | Series: School for
Advanced Research Advanced Seminar Series |
Includes bibliographical references and index.
Identifiers: LCCN 2016018343 (print) |
LCCN 2016037326 (ebook) |
ISBN 9780826357960 (pbk. : alk. paper) |
ISBN 9780826357977 (electronic)
Subjects: LCSH: Microfinance—Developing
countries. | Rural development—Developing
countries. | Small business—Developing
countries—Finance.
Classification: LCC HG178.33.D44 S43 2016
(print) | LCC HG178.33.D44 (ebook) | DDC
332—dc23
LC record available at https://lccn.loc.gov
/2016018343
Cover photograph: Tuca Vieira

Composed in Minion Pro and Gill Sans fonts
Contents
Foreword vii
James K. Galbraith
Introduction Setting the Scene 1

Milford Bateman and Kate Maclean
Part One Background

Chapter One The Political Economy of Microfinance 17
Milford Bateman
Chapter Two Poverty Reduction or the Financialization of Poverty? 33

Maren Duvendack and Philip Mader
Part Two Seduction

Chapter Three Pop Development and the Uses of Feminism 49
Meena Khandelwal and Carla Freeman
Chapter Four Petit Bourgeois Fantasies: Microcredit, Small-Is-Beautiful

Solutions, and Development’s New Antipolitics 69
Elliott Prasse-Freeman
Chapter Five Kiva’s Staging of “Peer-to-Peer” Charitable Lending:

Innovative Marketing or Egregious Deception? 87
Domen Bajde
Chapter Six Muhammad Yunus’s Model of Social Business: A New, More

Humane Form of Capitalism or a Failed “Next Big Idea”? 103
Milford Bateman and Sonja Novković
Part Three Betrayal

Chapter Seven Bosnia’s Postconflict Microfinance Experiment: A New
Balkan Tragedy 127
Milford Bateman and Dean Sinković
CHapter eIGHt From Tigers to Cats?: The Rise and Crisis of

in Rural India 147
Microfinance
Marcus Taylor
v
viContents
Chapter Nine The Destructive Role of Microcredit in Post-apartheid

South Africa 161
Milford Bateman and Khadija Sharife
Chapter Ten Public Goods Provision Aided by Microfinance: Groupthink,

Ideological Blinkers, and Stories of Success 183
Philip Mader
Chapter Eleven The “Scandal” of Grameen: The Nobel Prize, the Bank,
and the State in Bangladesh 203
Lamia Karim
Chapter Twelve Agricultural Microfinance and Risk Saturation 219

Charlotte Heales
Part Four Alternatives

Chapter Thirteen Banking on the Difference: Credit Unions as Superior
Local Financial Institutions for the Poor 237
Jessica Gordon Nembhard
Chapter Fourteen Microfinance and the “Woman” Question 251

Kate Maclean
Chapter Fifteen Moral and Other Economies: Nijera Kori and Its
Alternatives to Microcredit 265
Kasia Paprocki
Chapter Sixteen The “Solidarity Economy” Model and Local Finance:

Lessons from New Left Experiments in Latin America? 279
Conclusion It’s the Politics, Stupid 297

References 303
Contributors 357
Index 359
Foreword
James K. Galbraith
Seduced and Betrayed is one of the best books on modern economic develop-
ment to come along in years. Milford Bateman, Kate Maclean, and colleagues
here provide a full review of the single most heavily promoted, widely praised,
and widespread novelty in the history of transnational finance: the so-called
microfinance revolution. The public presentation of microfinance to the West-
ern world was a work of art. Emerging from one of the world’s poorest coun-
tries, Muhammad Yunus married a lofty rhetoric of female empowerment to a
grubby financial enforcement tool, namely group liability for repayment, and
Grameen Bank was born. Grameen made microcredit the model at a moment
when older models of development were under siege, when the state was in
retreat, and when the deregulation of global banking was at its peak. In this way,
highly repetitive loans, at high interest, for marginally viable purposes, free of
any need for the backing of public infrastructure investment or worker political
organization, could be sold as a pathway out of poverty.
Microcredit was a message tailor-made for the parlors of the well-meaning
New York rich. And it was taken up as a cause by some of the most powerful
poseurs and political money-grubbers on the stages of Davos, Aspen, and simi-
lar gathering spots. With the miracle of microcredit, the poverty problem could
be solved, and the bankers would solve it. No revolutions necessary, thank you
very much. From an ideological perspective, what could be better than that?
What Bateman, Maclean, and the other authors show is that the microcredit
message was crafted—expertly, indeed—to appeal to Western narcissism, with
borrowings from feminist tropes, small-is-beautiful fantasies, and the neo-
hippie appeal of participatory finance, in which lenders are “introduced” via
websites to borrowers and get to share in their evolution toward success as
microentrepreneurs. These chapters will be acutely painful, one suspects, to
readers who were taken in.
The authors also include a long and sad section on the actual results. Bosnia.
South Africa. India. Bangladesh. Malawi. Their studies demonstrate a pattern
vii
viii James K. Galbraith
that is practically everywhere similar. It is a pattern of unpayable loans for tran-

sitory projects, resulting in market saturation and debt peonage. It is a pattern
of microfinanciers getting rich, personally, while parading before their funders
as crusaders against poverty. It is a pattern of bankers and their acolytes, in the
wealthy West, resisting and covering up a full presentation of the truth and of
protecting the perpetrators with whom they have enjoyed a profitable associa-
tion. It is a pattern, in short, that ranges from the ill conceived to the fraudulent.
The list of cases is long though hardly comprehensive; disasters aplenty are not
chronicled here.
Finally, Bateman, Maclean, and colleagues present a round of clear and
simple alternatives. These include credit unions. They include usury limits. They
include a traditional approach to the “moral economy” that is rooted in a con-
ception of social justice. There is nothing mysterious here. If you want sustain-
able finance—experience tells—you have to keep it under control.
Introduction
Setting the Scene
This book examines from a multidisciplinary perspective the functioning, out-

comes, and often-hidden rationale that lie behind the most important, and
certainly the most popular, international development policy of recent years:
microfinance.1 Unusually for a technical financial development technique, a
large number of high-profile celebrity campaigns have ensured that the gen-
eral public has a broad awareness of microfinance and how it works.2 The
microfinance model involves the disbursement of tiny loans (microloans) to
the poor in order that they might establish a range of very simple, informal
income-generating activities. Although approaches to and ways of delivering
microfinance vary, the mainstream development community assumes that
microfinance, by developing formal sources of credit, will render the poor less
exploitable by informal sources—usurers or loan sharks. Proponents of micro-
finance further assert that a formal source of credit will virtually always lead to
a successful microenterprise, which will improve livelihoods, reduce vulnera-
bility, and, particularly if the borrowers are women, provide a source of income
that will be invested in health and community.
The microfinance model’s simplicity, apparent effectiveness, and resonance
with dominant neoliberal theories of development very much helped sell it to
the international development community and key Western governments, most
prominently that of the United States. Because the microfinance model put
(micro)entrepreneurship and markets center stage in the fight against global
poverty at a time, the 1980s, when the neoliberal model was gaining ground, its
popularity in the international development community was assured. Peruvian
economist Hernando de Soto (1986) was just the most prominent figure pre-
dicting that poverty would be abolished (in his native Latin America) thanks
both to more microcredit and the slashing of large numbers of regulations and
1
2 Milford Bateman and Kate Maclean
laws. A little later on, as the microfinance model was what we might call “neo-
liberalized” and turned into a for-profit business model, leading microfinance
advocates Maria Otero and Elizabeth Rhyne (1994) announced that a “new
world” of massive poverty reduction was just around the corner. Commercializ-
ing microfinance would result in “healthy” microfinance institutions that could
pump out massive volumes of microcredit without the need for any outside
subsidy or support, meaning that all poverty reduction through microfinance
would be a no-cost intervention. The formation of sustainable financial institu-
tions would themselves constitute development. The international development
community’s collective view was usefully summed up by the former head of the
International Labour Office’s social finance unit, Bernd Balkenhol (2006, 2),
who described microfinance as “the strategy for poverty reduction par excel-
lence” (emphasis in the original).
Accordingly, from the 1980s onward, poverty reduction and local develop-
ment policies and programs in developing countries were considered incomplete
without a major microfinance component abutted by a thorough deregulation
and desupervision of the local financial space. In principle—through self-help,
individual entrepreneurship, and very easy access to microloans—the global
poor could thenceforth be safely left to escape poverty through their own indi-
vidual efforts. This discourse—usually summarized by the phrase “to pull one-
self up by one’s bootstraps”—resonates with the coping strategies employed
by the entrepreneurial poor in the developing world, which often take the
form of informal microscale enterprises and tiny self-employment ventures.
In these situations, a lack of access to formal sources of credit is said to curtail
income generation. Yet the poor are, by definition, credit risks and hence vul-
nerable to exploitation by informal lenders, who, unrestricted by market and
formal mechanisms, may charge unacceptably high interest rates. Although this
type has been largely phased out in recent years, most microfinance interven-
tions initially accepted a group guarantee as “social collateral” against the loan
and so avoided the paradox inherent to formal banking systems in which it is
“expensive” to be poor. Not only did the group prove to be an effective form of
collateral—and microfinance was soon being celebrated for high repayment
rates—but the responsibilities of gathering information to establish credit wor-
thiness and collecting repayments were transferred to the group, thus reducing
administrative costs for the loan provider.
However, such an individualized, entrepreneurial approach to develop-
ment ignores the structural underpinnings of poverty, which include processes
Introduction 3
of colonization, rapid urbanization, and dynamics of gender, class, age, and

rurality, which attenuate life chances. It can also function to delegitimize politi-
cal resistance, blame the poor for their own situation, and dismantle poor
people’s “collective capabilities” (such as forming trade unions supporting and
voting for a pro-poor “developmental state” and mobilizing around single-issue
campaigns); indeed, many argue that dismantling such approaches to devel-
opment are the political aims of neoliberalism (Harvey 2006). Microfinance
exemplifies neoliberal approaches to welfare and inclusion in that it situates
development and poverty reduction as simply opportunities for entrepreneur-
ialism and extending the market rather than increasing collective and state-
coordinated social security provision and decent employment opportunities.
However, many have argued that collectively organized and state-led interven-
tions have historically been very effective in eradicating endemic poverty and
reducing crushing inequality in the now-developed countries (e.g., Krugman
2007; Green 2008) and that advocates of neoliberal, market-based approaches
to development are, in effect, “kicking away the ladder” for developing countries
in the Global South to go down the same path (Chang 2002). Although neo-
liberal economists and politicians would hold that in a globalized world, such
interventions serve as barriers to the expansion of global markets, increases in
inequality suggest to many that the ladder is indeed being kicked away (Pick-
etty 2014). The polemic positions on microfinance reflect these two sides of the
development challenge, but, as we will demonstrate in this volume, much politi-
cal, economic, and social complexity surrounds the anointing of microfinance
as a development panacea, as well as its more recent betrayal of that potential.
In 2010 enthusiasm for microfinance began to wane, even among erst-
while advocates (Harper 2011; Roodman 2012), because the debt incurred by
microfinance-supported entrepreneurs was simply not leading to poverty
reduction as had been promised and, in a growing number of cases, it was lead-
ing to deeper poverty, vulnerability, disempowerment, and even suicide. The
stories of these suicides, in particular, grabbed headlines around the world and
links were made to the transparency, accountability, and egregious profiteering
of the microfinance institutions themselves (Sinclair 2012a). Studies assessing
the effectiveness of microfinance as a tool of large-scale poverty reduction also
began to cast serious doubt on its empirical basis, and many realized that much
of the enthusiasm for microfinance had been ideologically motivated. Indeed,
the systematic, UK government–funded review of microfinance undertaken by
a notably independent group of impact evaluation specialists and microfinance
experts not only concluded that the “current enthusiasm [for microfinance] is
built on . . . foundations of sand” (Duvendack et al. 2012, 75), but that the case
for microcredit was actually so weak that they suggested it could only have
been made on the basis of the politics, not the economics. The authors thus
enjoined political scientists to attempt to understand “[why] inappropriate opti-
mism towards microfinance became so widespread” (Duvendack et al. 2012,
76). Similarly, a team of largely US-based academics working with a set of six
randomized control trials (RCTs) that focused on a number of leading micro-
finance projects found almost no positive impact arising from microfinance:
“The [RCT] studies do not find clear evidence, or even much in the way of sug-
gestive evidence, of reductions in poverty or substantial improvements in living
standards. Nor is there robust evidence of improvements in social indicators”
(Banerjee et al. 2015, 13, emphasis added).
The dramatic rise and fall of microfinance over the last twenty years pro-
vokes a number of questions that we will explore: What is the evidence of
microfinance having a positive economic and social development impact? What
political and cultural assumptions influence how this evidence is constructed,
analyzed, and used? What local and national poverty-reduction strategies have
been sidelined in the enthusiasm for microfinance? These questions require us
to cast a critical eye over discussions of microfinance, taking into account the
way the intervention has been sold (including claims about poverty reduction
and women’s empowerment) and assessing small-scale, qualitative case studies,
as well as large-scale claims, about the economic impact of microfinance. After
considering these issues from a variety of perspectives, we contend that micro-
finance was claimed to be a development panacea because it was rooted in a
neoliberal ideology that has underpinned the massive growth of inequality
over the period of time in question. Our exploration of alternatives, includ-
ing cooperatives, credit unions, and state-led development strategies, places the
politicized nature of microfinance evangelism in sharp relief.
The Book
This book originated in a four-day seminar supported by the National Science

Foundation and held at the School for Advanced Research in Santa Fe, New
Mexico, which brought together a multidisciplinary team of researchers to dis-
cuss the progress and problems of the microfinance model. Co-chaired by Mil-
ford Bateman and Lamia Karim, the event held in September 2012 produced
Introduction 5
a very lively and stimulating discussion informed by economics, politics, cul-

tural studies, sociology, feminist theory, and social anthropology. Invited soon
after to prepare a book based on the discussions in Santa Fe, we jumped at the
chance. We not only wanted to address important issues related to the once-
celebrated but now increasingly exposed microfinance model, we also espe-
cially wanted to continue our multidisciplinary approach, which had, we all felt,
worked so well in Santa Fe.
It should be clear, then, that this book is not meant as yet another celebra-
tion of the supposed benefits of microfinance. Its authors include the partici-
pants in the original seminar, plus others who were invited to contribute specific
expertise in order to create a diverse, critical volume. The contributors do not
offer a unified explanation for the rise and, we would argue, ongoing fall of the
microfinance model. And it should be obvious that explanations that might
appear to be competing, or even contradictory, are in fact informed by similar
institutional, feminist, cooperativist, and other related perspectives, all of which
are broadly antagonistic to the still-prevailing neoliberal consensus. A compre-
hensive analysis of microfinance—one that encompasses the critique offered by
qualitative anthropological research, one that can dissect the values that allowed
microfinance to “seduce” the world and blind even the most progressive to its
corrosive effects—is central to our approach. In particular, we explore a variety
of events and case studies that shed light on wider problems.
The book is composed of four main sections and begins with part 1: two
chapters that provide political and ideological background that is, we believe,
necessary for an understanding of the microfinance model and the impact it has
had. We then show in part 2 how and why the microfinance industry managed
to so skillfully ingratiate itself with the international development community,
as well as seduce the popular consciousness. Part 3 focuses on the microfinance
model in practice and how its growing ubiquity is leading to serious problems
in almost all locations. No critique is ever complete without at least some indi-
cation of what the alternatives are, which part 4 is meant to provide. The con-
clusion draws together and reflects upon the various critiques and alternatives
offered.
Chapter 1 by Milford Bateman is a brief exploration of the political economy
of microfinance. What have so often been deliberately overlooked in narrations
of the spectacular ascendance of microfinance are the political and ideologi-
cal goals of its promoters. Bateman argues that we cannot understand micro-
finance without some comprehension of the objectives of those individuals and
institutions that have combined to give life to a concept that, even today, cannot
be shown to achieve what its supporters say it achieves.
Bateman’s conclusion in chapter 1 is then usefully extended in chapter 2 by
Maren Duvendack and Philip Mader, who ask a wider but analytically similar
question: is microfinance really all about resolving poverty, or are there per-
haps other strategic goals at play? In asking this important question, Duven-
dack and Mader provide another important dimension to this study of the
real role of microfinance. The authors first flag the process of “financializing
poverty,” which has taken place under the guidance of successive neoliberal-
oriented governments (particularly the US government) in concert with the
major financial institutions themselves. The global financialization process can
only really be explained by reference to the fact that it has been of primary
benefit to financial elites, allowing them to extract enormous value from the
bottom of the fiscal pyramid. Duvendack and Mader then extend their analy-
sis into the world of microfinance. They show that microfinance represents a
dynamic process in which the desperate financial needs of the poor are oppor-
tunistically transformed into nothing more than a subprime asset class—a
commercial microloan—that can be freely traded, securitized, derivatized, and
otherwise egregiously manipulated in order to generate spectacular returns for
the providers of such microloans. Along with Bateman, Duvendack and Mader
confirm that we cannot understand the structure and dynamics of the contem-
porary microfinance phenomenon without also understanding wider structural
shifts associated with neoliberalism, financialization, and globalization in the
world economy.
Part 2, “Seduction,” opens with a chapter by anthropologists Meena Khan-
delwal and Carla Freeman, who investigate how microfinance advocates mobi-
lize the language and symbols of liberal feminism in purporting to advance
the interests of women the world over. In particular, they examine the cen-
trality of the claim that microfinance empowers poor “third world” women
and find the assumptions inherent in this claim—that credit can bring power
rather than debt, among others—troubling. Khandelwal and Freeman take a
discursive approach and analyze how microfinance advocates draw on liberal
feminist narratives that equate power with individual, entrepreneurial success,
colonial “rescue narratives” that portray third world women as needing lib-
eration by the West, and other development narratives that describe the third
world woman as a “hero” who has an almost-mystic ability to bring herself, her
family, and her community out of poverty. They substantiate their argument
Introduction 7
with specific examples from the documentary Half the Sky and the workings of
the group Kiva, which promote popular engagement with both microfinance
and development.
In chapter 4, Elliot Prasse-Freeman describes how microfinance, despite
being exposed as a failure by numerous studies, has still managed to be per-
ceived as a development success. Prasse-Freeman argues that microfinance
functions at the level of affect—playing on emotions and collective ideas of
hope, success, and well-being—to engage the Western liberal chattering classes.
Its proponents depoliticize development and imply that inequalities and hard-
ship, which have their roots in centuries of colonial and class-based oppression,
can be fixed by a technical intervention such as microfinance.
Using the example of Kiva, Domen Bajde in chapter 5 examines one of the
most important, yet troubling, trajectories in the microfinance movement—
the rise of so-called peer-to-peer (P2P) lending institutions that allow an indi-
vidual to make a microloan directly to another individual elsewhere. Such P2P
organizations constitute one of the most important cultural phenomena of
recent times, especially in the United States and among university students and
other young people. As Bajde outlines, the self-declared pioneering P2P orga-
nization Kiva managed to secure funds, celebrity endorsements, and massive
media support even though it was not actually a P2P organization at all. As
well as examining the origins of and transparency within Kiva, Badje explores
its discursive framing: the way that promotional materials and data collected
on the blog fellowsblog.kiva.org, as well as assumptions about the organiza-
tion’s success, are left unchallenged. Bajde concludes that the overwhelming
support for individual, entrepreneurial solutions to mass poverty has helped to
divert attention from other ideas and that the microfinance industry has over-
looked its own legal and ethical transgressions. What matters is not whether
an intervention actually works as its founders say it does, but whether or not it
ensures that poverty is addressed only through acceptable—that is, market- and
elite-friendly—means.
To conclude this section, Milford Bateman and Sonja Novković look at
what Muhammad Yunus has called his “second big idea”—the “social busi-
ness” model. This model is important because it is an attempt by Yunus to move
in a completely new direction in the humanitarian business world, while all
the time this “new” model is based upon the supposed success of his “first big
idea”—microfinance. Bateman and Novković address a number of worrying
issues. Above all, the authors find nothing in the evidence presented by Yunus,
or by his fellow social business (and social enterprise) enthusiasts, to support

the widespread contention that social business is an entirely new model, one
that will transform capitalism as we know it. All the conditions are now being
put in place, the authors conclude, for the rise of yet another ultimately prob-
lematic development industry fad.
Part 3, “Betrayal,” is composed of a number of chapters about the actual
achievements of the microfinance model in specific locations—both geographi-
cal and functional—previously considered to be evidence of best practices. Mil-
ford Bateman and Dean Sinković start off in chapter 7 by examining the once
hugely celebrated example of postwar Bosnia. Long held up by so many high-
profile microfinance advocates as the role model for all of the world’s postcon-
flict countries, the microfinance sector in Bosnia is increasingly responsible
for an economic and social calamity in this small country of only four million
people. On the economic side, there is little evidence of any net increase in jobs,
since higher levels of microcredit-stimulated microenterprise entry have been
matched by equally high levels of exit. More importantly, Bosnia’s scarce finan-
cial resources have effectively been used to build up a Bangladesh-style eco-
nomic structure dominated by informal microenterprises and self-employment
ventures but missing the “middle” of functioning, formal-sector small and
medium enterprises (SMEs). In addition, crucially important, intangible social
structures—trust, mutuality, reciprocity, and solidarity—have been under-
mined by the Wall Street–style salaries, bonuses, and other benefits enjoyed by
senior officials working in the microfinance industry, as well as by the rampant
fraud exposed in several of Bosnia’s most celebrated microfinance institutions
(MFIs). Bateman and Sinković conclude that microfinance has been Bosnia’s
very own subprime lending disaster, one that has spectacularly benefitted a tiny
elite working within and around it, while simultaneously destroying many of
the most important pillars of the Bosnian economy and society.
In chapter 8, Marcus Taylor looks back on the astonishing events that took
place in the Indian state of Andhra Pradesh and that culminated in the “micro-
finance meltdown” of 2010. Taylor begins by explaining that in the 1990s Andhra
Pradesh’s microfinance sector was perhaps a logical response to acute agrarian
distress and the dismantling of state support structures after the neoliberal
policy onslaught. But in the mid-2000s a quite spectacular growth spurt was
engineered in the urban areas before the microfinance sector entered into some
difficulty and almost entirely collapsed in 2010. Taylor finds the proximate cause
of Andhra Pradesh’s destructive boom-to-bust trajectory in the extensively
Introduction 9
deregulated (i.e., self-regulated) environment that existed prior to 2010, but

even more in the insatiable drive for growth, profit, and self-enrichment on
the part of the CEOs of the main MFIs. Adjudging that the dramatically high
level of “financial inclusion” achieved in Andhra Pradesh did not bring about
the promised levels of poverty reduction or empowerment, but actually frus-
trated any possible progress in these important directions and also inflicted
serious damage on parallel interventions designed to support the poor, Taylor
concludes that the whole experiment was misguided. His final point is a worry
that the renewed growth in microfinance in Andhra Pradesh in recent months
might not be beneficial, especially if the “tiger instincts” demonstrated by so
many MFIs in the run-up to the events of 2010 have not actually been con-
strained as much as the MFIs and their supporters and financial backers claim.
Milford Bateman and Khadija Sharife next ask what progress has been
achieved thanks to the massive expansion of the microfinance sector in post-
apartheid South Africa. Their analysis in chapter 9, perhaps more than any other
in this book, highlights the most destructive side of the microfinance model in
action. Spectacular levels of profiteering can be directly attributed to the main
commercial banks, and microcredit institutions (MCIs) saw in microfinance
a once-in-a-lifetime opportunity to get rich by programmatically, and all too
often illegally, overindebting the poor. The authors also point to the economic
and social madness of flooding poor communities with informal microenter-
prises that provided simple goods and services already adequately supplied by
previous generations of still-struggling informal microenterprises. Although
informal markets have been deemed ideal examples of free-market competi-
tion, the assumption that they will lead to the efficient allocation of resources
blinds people to the oppression, illegality, competition, turf wars, and degener-
ating living conditions that occur in the informal economy as a result of “pure”
market conditions. The clear racial divisions exposed in this analysis—the more
egregious profiteers are mainly white South African–owned institutions, while
the overindebted and dispossessed are overwhelmingly black South Africans—
inevitably serve to further aggravate an already-combustible situation. Bateman
and Sharife also point to the manifest connections between the stratospheric
levels of overindebtedness built up in many mining communities and the role
this indebtedness has played in precipitating violence, notably in the case of the
Marikana massacre, which took place in 2012. Their conclusion is a disturbing
one: the microfinance sector’s contribution to post-apartheid South Africa has
been deeply damaging.
In chapter 10, Philip Mader explores the controversial issue of how the
microfinance sector has prized its way into the provision of public goods. Using
a case study of water and sanitation in Andhra Pradesh, Mader delves into the
fundamental contradictions involved in using credit to provide such vital infra-
structure—and the clearest example of an inherently public good (i.e., clean
water). In the case of sanitation, Mader argues that despite its provision being
touted as a win-win situation, it is, in fact, inherently problematic. Provision
depends on private households deciding to take out loans for a good (sanita-
tion) that depends on infrastructure that may or may not exist and that will
benefit more people than just the households that are paying; poor people must
then use debt to pay inflated prices for potentially second-rate services. Micro-
finance commodifies and privatizes these public goods, making access to them
a private problem and bringing their governance closer to the financial market.
Whatever the intentions of the promoters of microfinance for public goods may
be, such projects serve to sedulously extend the reach of private finance into
traditionally public goods.3 Mader in his detailed case study illustrates how this
fundamental contradiction plays out and finds that the use of microfinance to
provide public goods is driven more by ideology than evidence.
Lamia Karim’s chapter continues one of the main themes of this book by
explaining the politics surrounding the scandal of Grameen Bank. The emer-
gence of various scandals involving Grameen played into power struggles in
its native Bangladesh. Competition among political parties, particularly in the
run-up to national elections, motivated certain people to take up claims and
counterclaims about Muhammad Yunus, the bank’s founder. At the same time,
the country’s enormous pride in its Nobel Peace Prize winner led many civil
society organizations and nongovernmental organizations (NGOs) to leap to
Yunus’s defense. The international development community and many high-
profile Western leaders, including Hillary Clinton, for whom Yunus and Gra-
meen had been talismanic, also defended Yunus’s position. Karim presents
and analyzes the metanarratives that have framed the success of Grameen—
centrally entrepreneurialism and women’s empowerment. As she breaks down
the chain of events in terms of the power struggles that occurred, she shows
clearly that none of the organizations involved were sufficiently representing
Grameen’s indebted beneficiaries.
Wrapping up this section, Charlotte Heales in chapter 12 studies the agri-
cultural sector in Malawi and the repeated claims that the microfinance model
will remedy persistent underinvestment and allow farmers to grow crops more
Introduction 11
effectively. Heales contextualizes her argument with a nuanced analysis of the

effects of structural adjustment on Malawi and the ongoing influence of inter-
national financial and development institutions on this landlocked, tobacco-
dependent country. Malawian agriculture remains subsidized by the national
government, but MFIs that target farmers with loans to promote agricultural
production can be seen as a means of opening this sector to the market. Based
on extensive fieldwork and a mixed-methods approach, Heales zooms in on
the issue of risk and asks what motivates people to take out microfinance loans.
She finds that despite the institution’s aims, most of the beneficiaries are not
involved in agricultural production and are specifically deterred by the high
risks associated with microcredit.
The purpose of part 4 is to very briefly sketch out what are some workable
alternatives to microfinance—alternatives that have been wrongly discredited,
abandoned, sidelined, and ignored as part of massive publicity drive to situate
the market-driven microfinance model as the only game in town. We wanted
to explore several areas, starting with the conundrum one often hears: if the
poor do not have access to microfinance, how will they be able to fulfill their
immediate needs?
The issue of direct substitutions for MFIs is dealt with in chapter 13 by Jessica
Gordon Nembhard. It is well known that democratically managed credit unions
and financial cooperatives have been eclipsed by the microfinance model, but
Gordon Nembhard argues that this development has been a negative one for a
number of reasons. Credit unions have been shown to be more stable over the
years than both for-profit MFIs and private commercial banks. The Great Reces-
sion took a terrible toll on commercial banks, for instance, with the result that
millions of people are now migrating over to the safer and less speculative credit
union sector. But most importantly, Gordon Nembhard points out, the typical
MFI is geared toward maximizing profitability, and this goal inevitably clashes
with the development needs of the community. As the case studies in this book
show, the largest MFIs are effectively programmed to overindebt the poor as
they seek to appropriate a steadily growing share of poor people’s income in the
form of interest payments. This is bad enough, but it gets even worse when the
profits are then channeled to the capital city and to rich shareholders abroad,
thereby removing an important element of local demand from the local com-
munity. Notwithstanding such problems, and finding the credit union to be too
“collective” and insufficiently entrepreneurial, the international development
community has much preferred to promote the microfinance model. Gordon
Nembhard concludes that we need to find our way back to credit unions and
other forms of community-based finance if we are really to assist the poor.
In her chapter, Kate Maclean highlights the importance of maintaining a
gendered approach to alternatives. Microfinance’s targeting of women borrow-
ers has been pernicious in many ways, as other chapters in this volume dem-
onstrate. Many scholars have highlighted the corrosive effects of using social
networks as collateral, particularly when the focus is entirely on the financial
sustainability of the institution rather than women’s empowerment per se.
Nevertheless, certain feminist organizations have used microfinance in instruc-
tive ways, contrary to the gendered exclusion and oppression inherent in the
way economic development is generally understood and practiced. Maclean
critiques microfinance from the point of view of feminist economics and high-
lights our need to rethink the economy with gender as a key category of analysis
in order to offer alternatives that may genuinely empower women.
In chapter 15, Kasia Paprocki effectively responds to those in the microfinance
movement who have persisted, often selfishly, in arguing that there is no alterna-
tive. In fact, Paprocki shows that in Bangladesh itself—among Nijera Kori, Ban-
gladesh’s largest movement of landless workers—alternatives to microfinance
not only exist, but are genuinely transformational and empowering in ways that
the microfinance model is not. Unlike so many other NGOs in the 1990s, Nijera
Kori believed that microcredit offered no long-term solution to poverty and
deprivation in Bangladesh, a viewpoint that the intervening years would appear
to have more than confirmed. Instead, Nijera Kori has found success by cam-
paigning for structural changes in Bangladesh, such as access to common lands
and cooperatives for the poor and landless. We know that poverty reduction in
practice requires a fair distribution of power and wealth, and Nijera Kori shows
that mobilization of the poor is a radical alternative to the seductive, but false,
vision of rural life that the microfinance industry promotes.
Milford Bateman and Kate Maclean in chapter 16 look to some of the exciting
local financial sector developments to be found in Latin America. As one of
the areas that suffered most egregiously at the hands of neoliberal structural
adjustment policies during the lost decade of the 1980s (and might soon do
so again), Latin America has, since the turn of the century, generated a large
number of innovative post-neoliberal approaches to local economic develop-
ment. From right-wing Colombia to the socialist governments of Venezuela,
Ecuador, and Bolivia, we have seen a proliferation of policies that engender a
more inclusive “solidarity” economy. The turn away from microfinance is part
Introduction 13
of a broad search for development alternatives that has taken into account the
social ravages of neoliberalism, indigenous demands for cultural recognition
and inclusion, extreme rates of inequality and exclusion worldwide, and the
fact that, in some countries, substantial portions of the population earn a living
entirely in the informal economy. The authors reflect on a range of examples
from countries across Latin America and highlight the significance of alter-
native financial models, from cooperatives to state regulation of the banking
sector, that are predicated on the need to promote inclusive development on
the basis of solidarity.
Finally, the themes of the volume are summarized in a concluding chapter
by co-editors Milford Bateman and Kate Maclean.
Notes
1. The term microfinance was initially used to refer to what is now more accurately
called microcredit, as microfinance actually refers to a wider range of micro-
financial services, such as microsavings, microinsurance, and so on. But given
the still very widespread use of the term microfinance to describe microcredit
across the development industry, in academic literature generally, and even
by microcredit advocates, we chose to follow this convention unless otherwise
indicated in the text.
2. The microfinance model has been promoted in mass media like no other inter-
national development policy before or since, with the result that it is, as Hulme
and Moore (2006) note, probably the one development policy that the aver-
age person in the street has heard about and might even support. Helping to
bring about this situation has been massive celebrity support from Hollywood
(Natalie Portman, Matt Damon), politics (most notably Bill and Hillary Clin-
ton), the music industry (Bono), business (Bill Gates through his foundation,
Richard Branson, Pierre Omidyar, Michael Dell), and European and Middle
Eastern royalty (Queen Rania of Jordan, Queen Maxima of the Netherlands).
For his part, microcredit’s most famous proponent, 2006 Nobel Peace Prize
recipient Dr. Muhammad Yunus, has been wildly celebrated in numerous
hagiographic documentaries and has logged many appearances on popular TV
shows, such as the Oprah Winfrey Show (2006), The Daily Show with Jon Stewart
(2006), and The Simpsons (episode 466, 2010).
3. By governance we mean the processes, formal and informal, that determine who
has power, who makes decisions, and how actors can make their voices heard
(see IOG 2013).
Part One
Background
Chapter One
The Political Economy of Microfinance
Milford Bateman
Introduction
Researchers in the international development policy field, notably James Fer-

guson (1990) and James Scott (1992), show that a yawning gap generally exists
between the declared objective of any particular policy intervention and the
hidden political agenda that lies behind that intervention. The purpose of this
chapter is to explore aspects of the largely hidden political agenda that emerged
first to help establish the contemporary microfinance model as one of the most
popular antipoverty interventions of all time and then to sustain it in spite of
its ineffectiveness. Rather than portraying microfinance as a way of helping
developing countries to create sustainable economies and meaningfully reduce
poverty, as is still the conventional wisdom, I use the accumulated evidence to
point firmly to another conclusion: microfinance gained its initial support and
then became a dominant feature of international development policy in the
longer term largely because it could be, and was, deployed to legitimize, main-
tain, and extend the global neoliberal project.
The Background
The act of providing small sums of capital to assist the poor has a long and
distinguished history. Many Asian and African countries have long used small
loans as a way of tiding over poor individuals in times of need. In the sixteenth
and seventeenth centuries, so-called Friendly Societies emerged across Europe
to provide loans and other forms of support for a large percentage of the poor.
In mid-nineteenth-century Germany, Friedrich Wilhelm Raiffeisen and Franz
Hermann Schulze-Delitzsch established the worldwide cooperative banking
17
18 Milford Bateman
and credit union movement to provide the poor with a wide range of services,
including small low-interest loans for productive purposes. At anything other
than a trivial level, however, this rich history of transformational ideas and
institutions actually has very little to do with the contemporary microfinance
phenomenon.
In this chapter I argue that the huge well of support for the contemporary
microfinance model within the international development community can be
traced back to the 1960s, to the period of Cold War politics that pitted the United
States against the former Soviet Union. From the end of the First World War
onward, the US government’s preferred capitalist model for developing coun-
tries, as in the United States itself (Gilens and Page 2014), essentially involved
a small domestic, capitalist elite in effective control of the government. The US
government ensured this outcome throughout the developed world by mobi-
lizing money, connections, and military might and was generally supported by
elite ownership and control of the most important enterprises and media outlets
(Miliband 1969). Sometimes a democratic electoral system was tolerated when
it produced the right result (returning elite or elite-backed politicians to power),
but, as extensively documented by scholars such as William Blum (2005), these
systems were routinely overthrown by the US government and its allies when
they did not. Business and political elites in developing countries were at all times
expected to closely adhere to US foreign policy goals, including the willingness
to suppress communist, leftist, and democratic-popular movements. Developing
countries were also expected to give US corporations unimpeded access to their
natural resources, labor pools, and markets. In return, the US government and
military supported a developing country’s domestic elite, protecting the elite from
the rest of the population and the threat of genuine democracy.
But no matter the effort to achieve a sustainable outcome along these lines,
the US government was forced to face down or contain many attempts in devel-
oping countries to build popular, democratic, pro-poor alternatives to US
hegemony and US-led capitalism, especially in the United States’ self-described
backyard: Latin America (Green 1995; Schoultz 1998). Latin American resis-
tance to US influence largely involved, as Noam Chomsky (1992, 49) famously
noted, “labor leaders, peasant organizers, priests organizing self-help groups,
and others with the wrong priorities.” In response, the US government worked
with many of Latin America’s military dictatorships, especially through its
infamous School of the Americas (Gill 2004), in order to identify as many of the
The Political Economy of Microfinance 19
most recalcitrant individuals and institutions as possible before subjecting them

to pressure, harassment, and, oftentimes, extreme repression and violence.1
However, such an openly aggressive approach has its practical limits and
obvious potential for unpredictable negative consequences, what Chalmers
Johnson (2000) famously termed “blowback.” Thus, in the early 1960s a parallel,
gradualist strategy—known as “winning hearts and minds”—began to evolve
within US government policy circles. Later coined “soft power” by Joseph Nye
(1990), this technique involved providing a modicum of direct support to the
poor in developing countries in the form of small loans, food aid, infrastructure,
technical advice, and so on. The hope was that the reduction in poverty would
be just enough to contain the rising pressure for much more radical change,
though not enough to encourage any upset to the prevailing structure of power
and wealth. While the poor advanced very little as a result of this patchwork of
measures, their expectations of change were raised. And if the hope of a better
future could be established, so the thinking went, then the world’s poor would
gradually learn to be content with their lot and refrain from supporting those
individuals and groups seeking to challenge the prevailing US-centered eco-
nomic and political system. The United States could thus more easily maintain
its hegemony in the face of the military and ideological challenge emanating
from the Soviet Union and from a range of pro-poor and popular groups within
these countries that were opposed to US hegemony.
The soft power strategy was immediately put into practice in Latin America.
President John Kennedy’s Alliance for Progress initiative, established in 1961,
offered foreign aid and mild pro-poor reforms (such as wider access to US mar-
kets) to the most “at-risk” Latin American countries. While on the surface the
program was a friendly antipoverty gesture and included much talk of the great
future in store for Latin America’s poor, its overarching goal was not poverty
reduction per se; the goal was to undermine the steadily growing support for
radical peasant, leftist, socialist-communist, and liberation theology move-
ments whose solutions to Latin America’s problems were contingent on the
United States leaving the continent (Wright 2001). The strategy worked for a
long time, only breaking down in the late 1990s as the economic and social
situation deteriorated considerably after the imposition of a package of neolib-
eral policies that came to be known as the “Washington Consensus” (see next
section; Burbach, Fox, and Fuentes 2013; see also Bateman and Maclean, con-
clusion, this volume).
20 Milford Bateman
The International Development

Community Discovers Neoliberalism
The soft power model was by no means always successful, as the many bottom-
up challenges to US-led capitalism in the 1960s and 1970s amply testify. But the
worst-case scenario of repeated Cuba-style revolutions and mass support for
the Soviet Union and its state-coordinated economic development model was
largely forestalled. In the late 1970s, however, much additional pressure was
placed on the soft power model by, paradoxically, one of those responsible for
introducing it in the first place: the US government.
This new challenge arose with the emergence of a radical free-market
approach to economy and society known as neoliberalism. Neoliberalism
quickly colonized the domestic policy-making institutions in the United King-
dom and United States following the respective electoral victories of Margaret
Thatcher in 1979 and Ronald Reagan in 1980. Neoliberalism inevitably went on
to characterize the international aid agencies in both countries. Thanks particu-
larly to US pressure, the World Bank and International Monetary Fund (IMF)
quickly adopted the key parameters of the neoliberal project and were soon
followed by virtually the entire international development community.
The neoliberal political project quite openly sought to dismantle the Key-
nesian consensus between labor and capital, through which the global poor
had made major gains after the end of the Second World War, and to return
power and wealth to a narrow but supposedly more productive capitalist elite
(Harvey 2006). That is, the neoliberal political project was going to make things
much worse for the poor by design, and this fact was almost immediately con-
firmed in the United Kingdom and United States. In the United Kingdom, Larry
Elliot and Dan Atkinson (2008) showed that the raft of neoliberal policy mea-
sures brought in after 1980 quickly began to disadvantage the poor and working
classes. Samuel Bowles, David Gordon, and Thomas Weisskopf (1990) described
a similar situation in the United States. One obvious reflection of the neolib-
eral changes under way in both countries was the spectacular rise in inequality
(Galbraith 2012; Piketty 2014). And as amply confirmed by Arthur MacEwan
(1999), Ha-Joon Chang (2007), Ha-Joon Chang and Ilene Grabel (2004), and
others, neoliberal policies applied to developing countries also made life much
worse for the poor.
Not surprisingly, this historic reversal of fortunes precipitated much anger
and bottom-up resistance to neoliberalism around the world. For a time, large
increases in personal, corporate, and foreign debt helped to attenuate resistance

to neoliberal policies in the developed economies, particularly in the United
States and United Kingdom. Increasing debt allowed individuals to maintain,
and even extend, high levels of consumption in spite of stagnant incomes,
essentially shifting the pain of neoliberalism onto future generations (Galbraith
2014). In developing countries, rising debt was also tolerated for the same rea-
son: in order that the poor might be pacified and dissuaded from resisting neo-
liberal policies until they were fully and irreversibly embedded. However, given
the sheer scale of the long-term damage being quietly inflicted upon the poor,
and especially when debt levels began to reach their upper limit, resistance to
neoliberal policies began to grow rapidly.
The reaction of those in the neoliberal policy-making establishment within
the international development community was to double their ongoing attempts
to locate policy interventions and programs that might defend, legitimize, and
popularize neoliberal capitalism. Crucially, they had one tried and true way of
diverting attention from its wider structural failures, one that also had a very
good track record in the developed countries: playing the “opportunity card.”
This technique involved highlighting the opportunity for all of the poor to join
in the wealth-creation process at a superficial level and then deploying a care-
fully managed public relations campaign to suggest that the tiny number of
successes were actually part of a major pro-poor transformation already under
way. By hyping the idea that virtually everyone can “strike it rich,” as Will Hut-
ton (2002) recounts, capitalism has always been able to maintain its popular
legitimacy, even among the very poorest. In the United States, of course, this
very powerful and seductive narrative of opportunity is centrally embodied in
the mythology of the “American dream.”
The neoliberal argument stresses more than anything else the equality of
opportunity for all individuals to engage in business activity, escape poverty,
and even get rich (Friedman and Friedman 1980). There is very little interest,
for obvious reasons, in the fact that already wealthy and well-connected elites
possess, by definition, far more opportunity than anyone else. Nor is there much
interest in the inevitable, highly unequal market-driven outcome, even though it
increasingly undermines the overall functioning of capitalism (Wilkinson and
Pickett 2009).
One of the most important practical manifestations of the opportunity card
in developed economies was to be found in the rapid growth of self-employment
programs. Already a popular intervention at the state level in the United States
22 Milford Bateman
in the 1970s, such programs were given further impetus at the national level
after Reagan came to power in 1980. Some of the most enthusiastic advocates
of the self-employment option in the United States (e.g., Servon 1997) went so
far as to proclaim that the poor would quickly begin to escape their poverty and
“take control of their own lives.” Such unbridled (not to say naïve) optimism
emerged with equal strength in the United Kingdom in the early 1980s, and self-
employment and “enterprise culture” programs were very centrally deployed by
the Thatcher government. This deployment was the ideologically appropriate
response to the disastrous early results of its hard-line neoliberal (monetarist)
experiment, one that had collapsed much of the country’s industrial sector
(partly deliberately in the case of the mining and steel industries) and very
quickly created mass unemployment while significantly reducing taxes on the
wealthiest. The poor could pull themselves out of their own misery. The state
and society should not, or should no longer, attempt to do this on their behalf.
Consider briefly the most important self-help program implemented by the
Thatcher government, the Enterprise Allowance Scheme (EAS). Beginning in
1982, the EAS was a small cash grant paid every month to an unemployed indi-
vidual in order to assist her in the establishment of a tiny self-employment ven-
ture or microenterprise. Although the EAS failed in terms of its declared goal of
promoting net job creation through self-employment, mainly because so-called
displacement effects were so high (Hasluck 1990; Storey 1992),2 it nevertheless
provided an early opportunity for the Thatcher government to register some
very important advances on the political-ideological front. That is, the EAS
further emboldened the Thatcher government to recast petty entrepreneurship
and self-employment as the principal market-driven, trade union–free solution
to poverty and unemployment, especially in the hugely depressed and tradi-
tionally highly unionized industrial regions in the north of England, Scotland,
Northern Ireland, and Wales. The government orchestrated a major public rela-
tions effort to suggest that unemployment was largely a voluntary phenomenon
since, the argument ran, it was now very easy to create one’s own job if one
really wanted to.
Despite the understandable reluctance of so many of the unemployed and
poor to engage in petty entrepreneurship, especially when so many existing
self-employment ventures were struggling or going out of business due to a
deficiency of customers and demand,3 the UK government was not deterred.
It pushed ahead with self-employment programs and related enterprise culture
initiatives. With help from an overwhelmingly right-wing media, the Thatcher
government was able to stigmatize the unemployed and poor as lazy, work shy
skivers who were largely responsible for their own unhappy predicament. This
characterization, in turn, allowed the government to justify to the wider voting
public its continued reduction of social welfare support for the poor and unem-
ployed, which was, awkwardly, taking place at the same time as taxes on the rich
were being quite dramatically reduced. The government managed to advance its
overarching objective—to convince its citizens that neoliberal capitalism was
working perfectly fine, that everyone had the opportunity to progress, and that
no one had to worry. The EAS was thus an early and very telling example of both
a failed economic policy and political success story.4
Microfinance Is “Discovered”
In the early 1980s, the importance of such neoliberal-oriented self-employment

options began to create much excitement within the main international devel-
opment agencies. It helped that many of the key officials and advisers of both
the Thatcher and Reagan governments had moved on to the international devel-
opment industry. They brought with them not just a firm personal commitment
to the global neoliberal political project and to the professional classes that were
very much benefitting but also substantial experience in establishing and oper-
ating self-employment programs (Bateman 2000).
Also important to the legitimization of self-employment in developing
countries was the discovery of the “informal sector” in the early 1970s. “The
informal sector” was a phrase used to describe the masses of informally self-
employed individuals struggling to survive outside of the private sector or
government. This sector was initially portrayed as a positive feature in a local
economy, a source of income, experience, and other benefits that the formal
sector economy simply could not deliver (ILO 1972; Hart 1973). Later on, how-
ever, members of the international development community began to take the
concept much further. They began to describe the informal sector not simply
as an outcome—whether good or bad—but as an instrument through which
local economic development and poverty reduction could be directly promoted
(Levitsky 1989; Stewart, Thomas, and Wilde 1990). One of their key assumptions
(since disproved—see La Porta and Shleifer 2008) was that a large number of
informal microenterprises and self-employment ventures would be “seeds” for
a thriving population of productivity-raising, formal small and medium enter-
prises (SMEs).
24 Milford Bateman
The realization began to dawn within the neoliberal international develop-

ment community that it might be able to establish self-employment programs,
similar to the EAS, that would provide all the poor really needed to escape
poverty. The poor need not attempt to combine (in trade unions, in coopera-
tives) or mobilize (in political parties, in protest movements). They simply
needed to get involved in the informal sector, and their escape from poverty
was virtually guaranteed. In addition, the expansion of informal activity greatly
helped in diverting their attention away from more collectivist solutions. Des-
perately struggling individuals and families engaged with informal-sector
activities had little time or energy to get involved in wider struggles. However,
the central problem with the self-employment option was that the poor, by defi-
nition, did not have the capital to facilitate their jump into self-employment
(Hulme and Mosley 1996). Enter the microfinance model.
The microfinance movement effectively began in Brazil in the early 1970s.
Here, a number of microenterprise development and microcredit support pro-
grams were established with the assistance of the Boston-based microfinance
advocacy body Accion, which tapped into a large amount of US government
funding through the United States Agency for International Development
(USAID). USAID would become central to the development of microcredit in
Latin America thanks to initiatives such as the Program for Investment in the
Small Capital Enterprise Sector (PISCES), which ran from 1979 to 1985 (Rhyne
2014). Other microfinance programs began in Latin America in the early 1980s,
including the Foundation for International Community Assistance (FINCA),
which was founded by John Hatch in 1984 and which derived nearly two-thirds
of its funding from USAID. Also joining the microfinance movement was the
Inter-American Development Bank (IDB), a junior partner of the World Bank
but equally oriented toward pursuing the neoliberal agenda, which began many
microfinance programs of its own.
Much emphasis in the 1980s was placed on establishing microfinance pro-
grams in Peru, where, it was hoped, the poor would be discouraged from offer-
ing support to the ongoing armed uprising led by the Shining Path. This effort
was famously spearheaded by Peruvian neoliberal economist Hernando de
Soto (1986), who received very generous funding from the US government to
argue that the rapid expansion of the informal sector would quickly overcome
endemic poverty and that US-style capitalism in Peru could also be made to
work for the poor majority. De Soto argued that the informal sector was the
staging area for Peru’s “heroic entrepreneurs” and that if only they could be
released from a supposedly crushing regulatory burden, and also generously

provided with microcredit, they would very quickly pilot the Peruvian econ-
omy toward sustainable and equitable growth.5 The poor should therefore not
resist capitalism, de Soto argued, but embrace it with all their might because it
would eventually help them reap their own rewards through self-employment.
De Soto’s argument quickly proved to be wrong in practice, not just in Peru, but
everywhere similar measures were implemented.6 As a result, he was gradually
cut loose by his USAID sponsors, and some officials within USAID even began
to describe him as a “fraud” (see Gilbert 2002, 3). Nonetheless, the supreme
ideological value of de Soto’s message is such that he still remains a popular
figure within the neoliberal policy-making establishment, especially within the
World Bank.
For a number of reasons, the microfinance movement achieved its most sig-
nificant breakthrough in Bolivia, one of the poorest and most unstable countries
in Latin America in the early 1980s. The World Bank, USAID, and “trouble-
shooting” economist Jeffrey Sachs all descended upon Bolivia with the intention
of delivering “shock therapy” to its ailing economy. As with all of the neoliberal
shock therapy programs (Stiglitz 2002), the poor were slated to suffer the most
in order to free up the resources needed to stabilize the economy, largely to the
advantage of domestic elites and foreign investors. One of the central reforms
recommended for Bolivia at that time was a restructuring of the local financial
system in accordance with key neoliberal principles. Bolivia’s then-modest raft
of not-for-profit microfinance programs, most operating in conjunction with
local and international nongovernmental organizations (NGOs), were quickly
replaced by the world’s first explicitly commercial microfinance sector. Led by
BancoSol, the first dedicated, for-profit microfinance bank, the sector was soon
marked by market-based interest rates, along with various Wall Street–style
management practices (high pay, generous bonuses, large dividends, etc.) that
were used to fully incentivize the managers of, and investors in, a microfinance
institution (MFI). Very quickly, microfinance in Bolivia was ramped up to the
point at which virtually every poor Bolivian had access to unlimited numbers
of microloans. Bolivia’s poor would now have no excuse not to engage in petty
entrepreneurial activity and self-employment ventures, thereby to fashion an
individual escape from poverty. The country thus had no need for comprehen-
sive welfare programs, nor the poor any need to actively support wider social
and political movements promising system-wide anticapitalist reforms.
Bolivia’s commercialized microfinance model was portrayed as the model
26 Milford Bateman
that the rest of the world should follow (Rhyne 2001; Robinson 2001). The claim
was made that the so-called new world of commercial microfinance pioneered
in Bolivia would greatly benefit the global poor, thanks to the massive boost to
bottom-up entrepreneurship and self-employment that would supposedly fol-
low (Otero and Rhyne 1994). The beauty of this claim was that the global poor
would not only be seen to be helped by their own governments and the interna-
tional development institutions, an important facet of the “containment” ide-
ology developed and promoted by the US government, they really would be
helped. Unsurprisingly, these developments in Latin America were the cause
for much excitement and celebration in US neoliberal policy-making circles.
The Rise of Muhammad Yunus and Grameen Bank
As the microfinance sector was developing in Latin America, Dr. Muhammad

Yunus was beginning his own work in the village of Jobra, halfway around the
globe in Bangladesh—work that would eventually earn him a Nobel Peace Prize
(in 2006) and catapult him into the role of the world’s most visible proponent
of the microfinance model. In spite of many indications from his peers in Ban-
gladesh that his ideas could not work on a meaningful scale, Yunus and his
uplifting message about the power of microfinance were warmly received, par-
ticularly the suggestions that microfinance would “bring capitalism down to the
poor.” The poor would soon aim to become successful microcapitalists, Yunus
argued, with an individual interest in nothing more transformative than simply
acquiring their own small piece of the action.
Yunus’s fund-raising efforts began to pay off, and in 1983 he was able to for-
mally establish his Grameen Bank. Within a few years it was prospering, thanks
to achieving a very high repayment rate (98 percent) because of, among other
things, an innovative “group collateral” scheme. The international development
community began helping Yunus to step out onto the world stage as its global
ambassador for microfinance. At the time, some analysts, notably the interna-
tionally respected development economist David Hulme, felt uncomfortable
with the extent to which Yunus was hyping the microfinance model.7 But the
international development community was very happy indeed to see Yunus
travel the world promoting a market-driven, private sector–led way to reduce
poverty. In the mid-1990s, Yunus upped the ante considerably when he began
to proclaim that Grameen Bank was already responsible for massive poverty
reduction in Bangladesh. Central to this claim were data from a major study
by the World Bank (Pitt and Khandker 1998) that concluded as many as 5 per-
cent of Grameen Bank borrowers had managed to escape poverty every year.8
Although this claim was ultimately shown to be false, it was hugely inspiring
at the time and galvanized many more into supporting microfinance, as, just
possibly, it was intended to do by the World Bank.9 It also helped Yunus begin
to impress upon other developing countries the idea that they urgently needed
to adopt the microfinance model as well.
Grameen Bank soon became the most high-profile global role-model institu-
tion associated with poverty reduction and bottom-up development. Grameen
Bank clones began to spring up all over Asia and Africa. In Latin America, the
feedback from the global publicity built up around Yunus, and the supposed
success of his Grameen Bank, ensured even more financial and popular support
for microfinance than before.
Driven by USAID and later the World Bank and its neoliberal-oriented affili-
ates (such as the IDB, the Asian Development Bank [ADB], and, later still, the
European Bank for Reconstruction and Development [EBRD]), support for the
microfinance model grew massively in the mid-1990s. The international devel-
opment community also began to take important steps to ensure that the fully
neoliberalized, commercial microfinance model pioneered in Bolivia would
become the global best practice and that all future expansion would be chan-
neled through this model alone. To achieve this goal, the World Bank in 1995
set up the Consultative Group to Assist the Poorest (CGAP), an in-house body
mandated to “coordinate” international donor policy toward microfinance—
coordinate being the World Bank’s standard code for ensuring that other inter-
national agencies fall into line with its own policies. Among other things,
World Bank/CGAP staff immediately began to produce a rule book codifying
the commercial microfinance model, known as the Pink Book (Committee of
Donor Agencies for Small Enterprise Development 2001). Thereafter, all other
international development institutions working on microfinance, as well as
national governments, were expected to strictly adhere to these rules. Failure to
adhere to the Pink Book rules would invite an extremely hostile reaction from
CGAP, and the World Bank as a whole, as, for example, in the case of Vietnam
(see Bateman 2010, 191–98).
By the early 2000s, arguably, the microfinance model had established itself
as the most important international development intervention of all time. The
poor were almost everywhere seen as individually responsible for using self-
employment to lift themselves and their families out of poverty. They no longer
28 Milford Bateman
needed trade unions, social movements, public enterprises, a comprehensive

welfare system, or an activist “developmental state,” and they certainly did not
need to argue in favor of a fairer distribution of wealth, power, and opportunity.
That is, there was no need whatsoever for the poor to resist global neoliberal
capitalism because they, too, were now (micro)capitalists. This was an achieve-
ment in social engineering that neoliberal policy makers could only contem-
plate with self-satisfied amazement.
But What to Do When the Economic

Case for Microfinance Is Debunked?
Beginning with the now-infamous Initial Public Offering (IPO) of Comparta-

mos Banco in Mexico in 2007, things began to change very rapidly. This IPO
was a defining event in the history of microfinance, not because it demonstrated
that poverty had been reduced in the average Mexican community—there
remains no evidence for this whatsoever—but because it exposed spectacular
profiteering by its own senior management, by supposedly concerned investors,
and even by already generously remunerated technical advisers based in Bos-
ton at the microcredit advocacy body Accion (see Butcher and Galbraith 2015,
8–11). In the wake of the Compartamos Banco scandal, the economic argument
in support of microfinance began to melt away. As this volume highlights, a
number of new academic studies soon emerged, including many from previous
supporters of the microfinance model (notably Banerjee et al. 2015), that very
seriously questioned the long-standing claims to positive impact made by the
microfinance industry. It is not too much to say that the case for microfinance
has been debunked.
Yet in spite of so much bad news, the international development community
and key Western governments continue to support the microfinance model.
What is it about the microfinance model that makes people believe, no mat-
ter what it actually achieves in terms of poverty reduction, it simply must be
saved? This overriding imperative has been quite spectacularly demonstrated
once more by the latest fad in the development industry: financial inclusion.
The mantra of financial inclusion insists that poverty will only be eradicated
if the poor have access to a much wider range of microfinancial services in
addition to microcredit, such as microsavings, microinsurance, microleasing,
digital payment opportunities, and so forth. In spite of almost no serious evi-
dence that the new financial inclusion model can work as it is supposed to work
(Gibson 2016; Mader 2016) and also growing evidence that the poor are not
nearly as enamored of financial inclusion as advocates think they are,10 finan-
cial inclusion has nevertheless garnered enormous support. Entirely predict-
ably, the World Bank has taken the lead in promoting financial inclusion (see
Demirgüç-Kunt et al. 2015). A growing list of microfinance institutions that
once proclaimed themselves to be in the business of “promoting microfinance”
have now dropped any mention of microfinance and have changed their mis-
sion objectives, and sometimes their names, too, to reflect the fact that they are
now part of what is being called the “financial inclusion movement.”11 For some
microfinance institutions, as Philip Mader and Sophia Sabrow (2015) show,
rebranding in this way helps even the very largest microfinance institutions to
carry on when common sense might otherwise suggest they close down.
Huge amounts of effort and resources have gone into constructing an entirely
fake financial inclusion agenda, the principal goal of which is to justify and pre-
serve the microfinance industry in spite of its now widely acknowledged fail-
ure to address poverty. As the chapters in this volume will further outline, this
rebranding exercise supplies further evidence that the microfinance model is
really all about supporting another agenda entirely: the global neoliberal project
that emerged in the 1980s and still stands today, in spite of having driven the
global economy into a brick wall in 2008, as the preferred ideology of business
and political elites. It remains to be seen whether or not this latest effort will
succeed.
Conclusion
I have argued that the microfinance model is a policy intervention that first
emerged as part of a strategy, still ongoing today, to help sell the US-led neo-
liberal model of capitalism to reluctant populations in developing countries.
By transforming the poor into potential microcapitalists, as well as releasing a
steady stream of public relations campaigns and channeling celebrity support,
the international development community was able to use the mere opportu-
nity of an individual microcredit-assisted escape from poverty to dilute growing
resistance to the antipoor outcomes of neoliberal policies. The latest attempts by
the international development community to rebrand the failed microfinance
model as financial inclusion are entirely in keeping with its earlier efforts to
sell to the poor neoliberal policies that are primarily of benefit to political and
financial elites.
30 Milford Bateman
Acknowledgments
Many thanks to Kate Maclean, Phil Mader, and an anonymous reviewer for
many very helpful comments on the first draft of this chapter. Responsibility for
remaining errors and misinterpretations remains with the author.
Notes
1. Perhaps the most extreme operation of this kind was the case of “Operation
Condor,” a program of targeted assassinations coordinated by a group of Latin
American military governments operating with the tacit, and sometimes active,
support of the US government (McSherry 2005).
2. Displacement occurs when a new enterprise enters the local market and the
jobs and incomes it directly creates are offset by a loss of jobs and incomes from
incumbent enterprises operating in the same sector that lose market share as a
result of the new competition.
3. In a pathbreaking study, Storey and Strange (1992) found that larger numbers
of EAS-driven start-ups in the depressed county of Cleveland in the north of
England generally produced no identifiable net gain in employment. The prob-
lem in Cleveland, as everywhere else at the time, was pretty clear: a depressed
level of local demand, plus the fact that the unemployed and unskilled tended
to go into easy-entry sectors as much as possible (such as hairdressing and
motor repair in Cleveland), even though these sectors were almost all saturated
with incumbents struggling to make a living. Not surprisingly, most new EAS
entrants failed after a few years, and even when they survived (for a time), they
mainly took business away from other microenterprises in the neighborhood,
which then reduced their own employment or caused them to fail outright.
4. This ideological serviceability helps to explain why, in spite of its very weak
track record, the EAS made something of a comeback in the United Kingdom
under Prime Minister David Cameron. See http://startups.co.uk/cameron-
reveals-plans-to-support-40000-new-enterprises/. Importantly, just like in
the 1980s under the Thatcher government, almost all of the jobs created in the
last few years in the United Kingdom are associated with petty/unskilled/non-
unionized forms of self-employment, a “success” that cannot compensate for the
equally large number of much better paying jobs lost prior to 2014. See Guard-
ian 2014a.
5. In time, the microfinance movement in Peru would become the world’s largest,
but it emerged in parallel with rising poverty there (Bateman 2013b). Moreover,
by 2014 the microfinance sector in Peru was in danger of a total collapse thanks
to rising defaults, multiple lending, and so on. See Sinclair 2014b.
6. In fact, it is now increasingly accepted that the diversion of Latin America’s

scarce financial resources into growing the informal sector was actually one of
the primary causes of the dramatically growing levels of poverty, unemploy-
ment, inequality, and deprivation experienced after 1980. Put simply, the scarce
financial resources channeled into microfinance, and then into the informal
sector, effectively starved far more productive formal small, medium, and large
enterprises of desperately needed financial support (IDB 2010; Bateman 2013b).
7. Hulme (2008, 6) writes, “[Yunus] energetically promoted microenterprise credit

as a panacea for poverty reduction (something that intensely annoyed me, as it
was so wrong).”
8. For example, Roodman and Morduch (2013) found that Pitt and Khandker erred
by not eliminating a tiny number of outliers from their large data set. By exclud-
ing just sixteen rich families from the 5,218 families surveyed by Pitt and Khand-
ker, Roodman and Morduch were able to show that all the supposed gains from
microfinance completely disappeared. See Roodman 2011.
9. My interpretation of the simple “mistakes” made by Pitt and Khandker is that

they were part of a familiar, ideologically guided misrepresentation of the situa-
tion (on this as a general feature of much of the World Bank’s research, see Van
Waeyenberge and Fine 2011, 26–48). For example, Pitt and Khandker, and then
Khandker in subsequent follow-up work for the World Bank (Khandker and
Samad 2014), make the bold assumption that the bulk of microcredit is accessed
for income-generating projects, which fits in with their crucial claim that sig-
nificant additional income was indeed generated in the poorest communities as
a result. In fact, it has been known for many years that the bulk of microcredit
accessed in Bangladesh is for consumption purposes (see Bateman 2013a; on this
crucial point, see also Rozas 2014a), a use that is not generally associated with
income generation.
10. Bateman and Sharife (chapter 9, this volume) refer to the example of the Mzansi
account, which was launched in 2005 but almost completely failed to attract the
custom of the poor and was eventually abandoned. Another example would be
India’s “Jan Dhan Yojana” financial inclusion initiative, which quickly attracted
seventy-five million people with its new low-cost bank accounts but found that
many of the accounts (as many as 75 percent) remained dormant (Agarwal
2014).
11. For example, the Microfinance Club UK, since 2005 one of the United King-
dom’s leading pressure groups behind microfinance, recently changed its name
to the Financial Inclusion Forum. See http://www.mfclubuk.org.
Chapter Two
Poverty Reduction or the

Financialization of Poverty?
Maren Duvendack and Philip Mader
Introduction
For decades, many have claimed that microfinance successfully alleviates

poverty and empowers women. Yet the scientific research on microfinance’s
impacts hardly offers such a clear picture. In this chapter we discuss the evi-
dence, reviewing the existing literature on the impact of microcredit and squar-
ing it with evidence on payments extracted from and discipline instilled in the
poor. Such a review of what we know—and do not know—about the impacts of
microfinance is all the more important in light of the continued enthusiasm for
extending financial services to poor people, an enthusiasm that is often based
on anecdotes narrated by charismatic individuals such as Muhammad Yunus.
Microcredit has evolved over the years and now includes not only credit for
the poor but also a myriad of other services such as savings, insurances, remit-
tances, and even nonfinancial services such as financial literacy training and
skills development programs—hence the term microfinance. The core of almost
all microfinance institutions (MFIs) remains microcredit; however, micro-
finance is primarily the business of small debts, so we concentrate here on the
effects of this business. A key feature of microfinance has been the targeting of
women on the grounds that they perform better as clients compared to men and
that their participation has more desirable development outcomes.
The Microfinance Success Story: What Is the Evidence?
Despite the popularity of microfinance, we have no clear evidence to show that

these programs have positive impacts on the poor and the poorest. But thanks
to visionary individuals backed by international supporters and strengthened
33
34 Maren Duvendack and Philip Mader
by unsystematic, outdated, and, in some cases, arguably misleading literature

reviews (e.g., Sebstad and Chen 1996; Gaile and Foster 1996; Goldberg 2005; and
its follow-up, Odell 2010), microfinance has risen to prominence and become
the darling of donors, the media, and the public.
Since the late 1990s, however, critical voices have become louder (starting
with Fernando 1997 and followed by Dichter and Harper 2007; Bateman 2010;
Roy 2010; and Sinclair 2012a), warning that microfinance is not a silver bullet
and may even do more harm than good. The sceptical view is, moreover, con-
firmed by three recent UK government–funded systematic reviews (Stewart
et al. 2010; Stewart et al. 2012; Duvendack et al. 2011a) that examine micro-
finance and find no clear evidence of it having positive or negative impacts over-
all.1 Another systematic review (Vaessen et al. 2014) examining the impact of
microfinance on women’s empowerment comes to broadly similar conclusions.
Let us dig a little deeper into the recent evidence of the impact of micro-
finance. Maren Duvendack and colleagues (2011a) located nearly three thou-
sand studies of relevance, which they screened in several stages and reduced to
fifty-eight that were found to be adequate to be examined in detail. They con-
clude that these impact evaluations almost all suffer from weak methodologies
and poor data quality, which adversely affected the reliability of their impact
estimates. This problem of reliability has led to serious misconceptions about
the actual effects of microfinance. All four systematic reviews find that rigor-
ous quantitative evidence on the nature and magnitude of microfinance impact
is still scarce and overall inconclusive; as a result, one can neither support nor
deny the notion that microfinance is pro-poor and pro-women. In other words,
we still do not know under what circumstances, and for whom, microfinance
has been and could be of real, rather than imagined, benefit.
Going further, we have noticed a lot of enthusiasm among development
economists for randomized control trials (RCTs), which some see as the gold
standard for assessing the impact of development interventions. Relatively few
RCTs have been conducted on microfinance interventions to date, but their
numbers are growing. However, the validity and usefulness of RCTs has been
extensively debated. Many scientists believe that randomization—the tech-
nique of selecting the members of “treatment” and “control” groups for a given
intervention at random—is the only method that can establish the causality
of outcome variables. These scientists claim that RCTs provide an accurate
counterfactual for comparison (i.e., they simulate what would have happened
to beneficiaries in the absence of the program under scrutiny) and control
Poverty Reduction or the Financialization of Poverty? 35
for self-selection bias (i.e., individuals who are more likely to benefit—or dif-
fer on other parameters—are also be more likely to participate, thus skewing
the results). Proper randomization ensures that individuals in treatment and
control groups are essentially equivalent in terms of observable and unobserv-
able characteristics, with only the exception of their “treatment” status—for
instance, whether they received a microloan or not.
While some have argued that RCTs do not yield credible evidence in a timely
manner useful for policy decisions, there continues to be widespread belief in
their internal validity and in the scientific credibility of their findings, despite
critical voices that have recently become louder. These critics have pointed to a
number of limitations of RCTs in the context of developmental interventions.
First, randomization may be incomplete, and procedures need to be closely
investigated in each case to establish whether allocation of individuals to treat-
ment and control groups was truly random. Second, it is doubtful that double-
blinding (which is standard practice in medical trials) can be ensured: how
confident can we be that study participants, as well as researchers, have no
knowledge of who has received the intervention? More likely, both participants
and researchers are aware of who has received a microloan and who has not.
Third, how has attrition (dropouts versus graduates) bias been dealt with? For
a number of reasons, less-successful individuals are more likely to drop out of
a program, leaving a study biased toward cases of success. Fourth, RCTs raise
tricky ethical issues because real, live human beings are being experimented
on. Fifth, the experiment itself may cause behavioral changes among the study
population. Sixth, spillover and spill-in effects play a role and cannot be fully
eliminated as, for instance, when a “control” household sees its business out-
competed by a “treatment” household that has used a microloan to expand its
business (e.g., Scriven 2008; Barrett and Carter 2010; Deaton 2010; Harrison
2011). Finally, Stern and colleagues (2012) argue that in 95 percent of all cases
RCTs are not an appropriate tool for evaluation due to technical, ethical, and
practical concerns.
Let us now focus on the first two RCTs to assess the impact of micro-
finance—Banerjee et al. 2009 and Karlan and Zinman 2010—as these have
received the bulk of attention to date. Both studies find very few significant
impacts at all. Most of the impacts that could be observed occurred early on in
the causal chain, that is, predominantly in the inputs stage. A few coefficients
suggesting impacts of microfinance access on business activities (higher inven-
tories, profits, etc.) were observable, but very few significant impacts on direct
(health, education) or indirect (income or consumption expenditures) indica-

tors of poverty and well-being were found. Of those impacts suggested by the
data, moreover, not all were positive. They included a significant decline in
some goods and services typically consumed by the poor, as well as decreases in
the aggregate happiness of borrowers.
Abhijit Banerjee and colleagues (2009, 28) argue that a reduction in tobacco,
food, and tea consumed on the street in Hyderabad, India—things they labeled
“temptation goods”—meant that microlending led households to reprioritize
their expenditures beneficially; they interpret microcredit as a “disciplining
device to help households reduce spending that they would like to reduce.” Yet
the finding may equally well indicate worsening poverty that forced poor people
to tighten their belts. Karlan and Zinman (2010) find that credit recipients’ sub-
jective well-being in Manila, Philippines, declined significantly, but they do not
discuss the implications of this finding. From a critical viewpoint, we may take
these findings to indicate that receiving a microcredit loan can lower one’s life
satisfaction, even and especially compared to the consequences of having one’s
loan application rejected. Both these findings imply heightened oppression
rather than empowerment from microfinance.
The Microfinance Hype?
The little RCT evidence we have has so far been been inconclusive on the impacts
of microfinance. Based on current evidence, microfinance activities are equally
likely to reduce poverty (positive impact), increase poverty (negative impact),
or have no effect on poverty (zero impact). The issue therefore remains open to
debate: what does it mean not to have found the expected impacts? Many micro-
finance advocates and sympathetic academics, including those responsible for
the randomized studies, have interpreted the absence of evidence for positive
impacts as not being indicative of an absence of these impacts. And more is at
stake than mere fact-finding. While the Economist (2009) asks whether, based
on these results, we should accept the null hypothesis of “no impact” with a high
level of confidence, many prominent academics involved in microfinance seem
to have preferred not to reject the alternate hypothesis. They imply that these
studies do not provide evidence against the hypothesis that microfinance has
beneficent impacts (see Duvendack et al. 2011a for more details).2
The question must be asked: why has microfinance risen to such prominence
if there is no robust and systematic evidence to support the claim that it has
beneficial effects on the well-being of poor people or that it empowers women?

If anything, it is rather surprising that microfinance has been so successfully
hyped as a solution to the problems of poverty and women’s disempowerment.
David Roodman (2012, 13) cautions that maybe now “it is the hype that is over-
hyped”—that is, the criticism of microfinance as a developmental fad has gone
too far—but we would tend to disagree.
Today, microfinance lending nearly rivals official development aid (ODA);
microloans in 2011 totaled US$87.7 billion versus US$106.9 billion in ODA
(MIX 2012; OECD 2012). Microfinance is no longer an experimental develop-
ment project in a few localities, but a long-standing global program that affects
hundreds of millions of people. As such, its activities have absorbed a signifi-
cant proportion of development resources, in terms of both finance and people,
possibly because influential microfinance advocates are a strong lobby in gov-
ernments and the international development community (see Bateman, chap-
ter 1, this volume). Moreover, microfinance activities are highly attractive not
only to the development industry, but also, increasingly, to mainstream finan-
cial and business interests for reasons of profit. Indeed, the supreme attraction
of microfinance to profit-oriented actors has played a significant role in its spec-
tacular growth over the last two decades and should be factored into a holistic
assessment of microfinance as a poverty-reduction policy—as well as held up
as a caution against further support for an activity whose beneficent impact is
proving difficult to measure, to say the least.
Financializing Poverty
Research in political economy and the social sciences has called attention to the
exceptional (and possibly historically unique) expansion of financial markets
in recent decades. This expansion has allowed financial markets and the actors
involved in them to gain influence and control over ever-larger sections of the
economy, a process widely referred to as financialization (Epstein 2005). In par-
ticular, expanded access to credit in the age of financialization has often served
to compensate low-income people for the pecuniary losses and heightened
social insecurity that they and others suffered during the attacks of neoliberal-
ism on the welfare state and its redistributive institutions. Credit proved useful
for keeping labor compensation low while simultaneously keeping demand up
and labor under social control (Gramm 1978; Weber 2004; Deutschmann 2008;
Boyer 2010; Rajan 2010). With access to credit expanding, particularly among
low-income populations, Jean-Michel Servet and Hadrien Saiag (2014, 38) note,
“The draining of financial resources through various forms of debt can be inter-
preted as a particular form of the capital-labour relationship. . . . Paying interest
to develop productive or trading activities is the equivalent of paying a levy on
the income from this activity.” The mechanism for “draining” resources is the
returns to be earned on debt, which MFIs around the world have demonstrated
can also be collected in financial dealings with the poor (Ehrbeck, Leijon, and
Gaul 2011; Rogers and Campbell 2012).
For Stephen Young (2010, 607), microfinance strategically repositions places
and people “in relation to the perceived opportunities or risks they present to
global capital flows.” Microfinance brings finance into the world of the poor and
the poor into the world of finance. In microfinance, the lack of sufficient capital
for survival and enterprise activities among one class of people (“the poor”) is
made the basis for a contract with another class willing to rent out its capital.
The borrowers are granted the use of someone else’s capital for a fixed time
span; they engage their productive capacities in one way or another to repay the
loan during this time; and meanwhile, they pay some share of the fruits of their
labor to the creditor as interest. Malcolm Harper, once a most enthusiastic sup-
porter of microfinance and now one of its most pointed critics, argues that this
arrangement works in the interest of the capital owner in more ways than one:
Microfinance offers a more subtle and potentially more durable means

whereby those who control capital can exploit those who have only their
labor to sell. . . . Microfinanciers can now provide capital, in the form of
microcredit, which borrowers use to purchase the tiny amounts of stock or
simple tools they need to run microenterprises. The surplus they can earn
is barely sufficient for survival, but because the investments are so small the
turnover is relatively high and the borrowers can afford to pay high rates of
interest on their loans. Capitalists no longer have to organize and man-
age labor. They can extract a higher return on their capital not by directly
employing people, but by financing their petty businesses under the guise
of assisting them to become entrepreneurs. (Harper 2011, 59)
Yet for such a system of lending to continue to be viable, a market for micro-
finance must still exist after successive loan cycles are concluded. This market
requires a persistent demand for high-interest, low-volume loans. Microfinance
promoters suggest that the assurance of being “here to stay” is crucial since, in
the absence of collateral, it is only the promise of a future loan that will ensure
a client’s repayment. At any rate, “keeping microfinance viable” is one of the
justifications regularly put forward for why it must be highly commercialized
and profitable, which then become the hallmarks of “successful” microfinance
(CGAP 2013), much more than positive results from scientific assessments of
poverty reduction. As Mohini Malhotra (2000, 204) remarks, “The good insti-
tutions . . . pass the acid test: the clients, who are paying full price for services,
vote with their feet and come back for more. Poor clients are borrowing, saving,
repaying, and returning to purchase additional services at above-market inter-
est rates. That is as honest an impact assessment as I need.”
Microfinance proponents pride themselves on clients continuing to bor-
row small sums of money at high rates of interest, even after years, which they
would be unlikely to do if they were systematically exiting from poverty. In
this sense, microfinance may even be dependent on a reproduction of poverty
in each cycle, although perhaps involuntarily or unconsciously. It would make
little business sense for MFIs to erode their own client base—assuming this to
be possible—by allowing substantial numbers of poor people to “graduate” to
a level where they could borrow from regular banks or other cheaper sources.3
Beatriz Armendáriz de Aghion and Jonathan Morduch (2005) mention dropout
rates between 3.5 percent and 60.0 percent in a wide range of microfinance pro-
grams worldwide. In a study of Bangladesh, Shahidur Khandker (2003) shows
that the dropout rate in the program he examined was around 30 percent, while
G. Alexander-Tedeschi and Dean Karlan (2007) found that the dropout rate
was about 56 percent in Peru. Importantly, we do not know whether these fig-
ures refer to graduates or dropouts—that is, people who leave microfinance for
reasons of success or failure.
Not surprisingly, few studies have examined this issue—perhaps for fear of
what they might find—while MFIs themselves have no interest in investigating
either graduates or dropouts, both of which would reflect negatively on their busi-
ness model. In this context, Dean Karlan (2001) argues that it is also important
to analyze the credit and savings options available in a community; for example,
some households might exit a program because they find better alternatives. In
any case, this failure to examine graduate and dropout issues has had serious
implications for measurements of the impact of microfinance, given that an
impact may be underestimated when clients who have fared better exit the pro-
gram and leave the poorer ones behind. In contrast, the impact may be overesti-
mated when poorer clients exit, thus leaving behind the better-faring ones.
The Financial Innovation of Microfinance
By its very design, microfinance works to create new economic relationships

between capital owners and capital borrowers. The fundamental innovation of
microfinance lies in its capacity to bring borrowers who were previously con-
sidered “unbankable” into connection with spatially and economically removed
lenders pursuing financial returns, as well as other objectives. This new financial
relation often runs directly from the (very) poor to the (very) wealthy through
the microfinance sector, which provides the technologies for channeling large
amounts of capital directly to people without assets or collateral at the bottom
of the global income distribution—technologies that include group lending,
social collateral, standardization and computerization of disbursement, rating
of MFIs, securitization of microfinance portfolios, and so forth.
Thanks to microfinance, it is possible for investors (such as Bill Gates or
1.5 million Kiva users) to lend to some of the poorest people in the world, with
only an MFI in between. Whether they are conscious of their impact or not,
and regardless of their motives, such investors are contributing to an expansion
of the financial market into new territories and bringing people into new rela-
tionships with finance (a fact explicitly recognized, for instance, in the global
drive for “financial inclusion”). By providing capital and having it returned with
interest, the financiers of microfinance become the owners of asset streams gen-
erated by the poor in the Global South. The continuous, rapid growth of the
global microfinance loan portfolio over many years—at rates between 48.9 and
71.7 percent from 2000 to 2009 and between 13.4 and 24.0 percent from 2009
to 2011 (MIX 2012)—demonstrates the efficacy of the relationship for the capital
providers and their intermediaries. It also highlights the continuing demand
for loan capital among the poor. Such growth indicates that this relationship
between owners and borrowers has worked well for capital owners: they have
been willing to pump further money into the system and expect it to be fairly
durable.
Using data collected by the Microfinance Information Exchange (MIX) data-
base, we can quantify the scale at which microfinance activities work to extract
resources from borrowers. In its role as global collector and disseminator of
investor-oriented information about microfinance, MIX reports the “Yield on
Gross Loan Portfolio” for a large sample of MFIs around the world.4 The yield
figures are not adjusted for the effects of portfolio growth and may be otherwise
downward biased, but nonetheless the MIX offers the largest existing database
on MFI earnings.
Globally, MFIs reported a total gross loan portfolio of US$100.7 billion (1,257
MFIs) to MIX in 2012. The mean yield, weighted by the size of the loan port-
folio, was 21.5 percent, a figure broadly congruent with, albeit lower than, the
figure reported by Richard Rosenberg, Adrian Gonzalez, and Sushma Narain
(2009) of Consultative Group to Assist the Poorest (CGAP) for 175 “sustain-
able” MFIs, namely 28.2 percent. Using this 21.5 percent average, and estimating
the yield of those MFIs that did not report to be the same as those that did,
we can calculate that US$21.7 billion was paid to the microfinance industry by
its borrowers in 2010.5 Calculating back for all years in which data are reliable
(2003–2010), we find that the surpluses known to have been extracted (by those
MFIs that reported yield) reach a total of US$88.8 billion; and extrapolating
from this figure for those MFIs that did not report yield, we see that the figure
rises to US$124.6 billion. These figures tell us how much surplus was extracted
by the microfinance industry from microcredit borrowers, according to its own
reports. This surplus must first be produced by the borrowers through some
form of labor so that it can be paid to the MFIs. The figure of US$21.7 billion,
for 2012, thus represents the aggregate labor, at market value, performed by the
poor for the microfinance industry in that year.6 Of course, these figures do
not on their own make microfinance a profiteering enterprise, and they are not
necessarily evidence of any harm done to the poor.7 However, the figures dem-
onstrate that microfinance has the capacity to extract payments (and thereby
resources) from borrowers in significant quantities, adding value to the portfo-
lios of financial actors through the economic activities of poor people.8
This evidence must be considered along with the persistent lack of evidence
for positive impacts on poverty, as we have outlined. Thanks to the microfinance
system having challenged not only the traditional moneylender, but also the
assumption that the poor are bad debtors, those living in poverty now enter into
modern practices of financial valuation and the sphere of transnational inves-
tors. Microfinance has succeeded in becoming a financial industry in its own
right that renders poverty perceptible and relevant to participants (investors,
intermediaries) in globalized financial markets.
A Chain of Discipline
The effects of the expanded reach of financial markets thanks to microfinance

include not only payments drawn from the surplus labor of the poor, but also
an increased level of discipline instilled by the markets themselves. These effects
of microfinance have already been described empirically, for instance, by
researchers studying borrowers’ expenditure patterns and interpreting micro-

credit as a useful “disciplining device” for successfully altering the spending
habits of the poor (Banerjee et al. 2009, 28). However, we may analyze the micro-
finance system—reaching from the funders via MFIs to the borrowers—more
broadly as constituting a chain of disciplinary devices operating on different
levels of the microfinance relation. These disciplinary devices serve to produce a
cascade of “governmentality,” that is, practices of observation and self-discipline
performed by the actors involved that allow the system to function.9
If microfinance is to be understood as a cascade of governmentality-
producing devices, then we might illustrate in an idealized fashion how the
exertion of disciplinary power works at various levels. Let us begin at the apex
of the microfinance food chain with the investors and donors whose invest-
ments are often channeled through specialized microfinance investment
vehicles (MIVs) into microfinance. A private investor may, for instance, invest
in a Deutsche Bank investment vehicle that, in turn, buys shares in an MFI, or
a US pension fund may buy collateralized microloans from a Citibank affiliate.
But even if these investors conceive of themselves as “social investors” who are
pursuing social aims in addition to pecuniary returns, most of them nonethe-
less require regular (and sometimes high) cash flows. Therefore, they monitor
their investments and other investment opportunities by, for instance, studying
and comparing the financial performance of MFIs, reading rating reports, and
observing fluctuations in the asset prices of MFI shares.
Investors’ requirements for financial returns are translated within the MFIs
into standardized accounting schemes and real-time management informa-
tion systems (MISs) that serve to inform head offices of normal operations (or
deviations from the norm—for instance, if and when loan repayment rates in a
district have gone down). Managers can act quickly to identify problems and, if
necessary, discipline staff. The loans are usually repaid weekly, which is in itself
an important monitoring device as it allows MFIs to watch closely the perfor-
mance even of individual branch offices and loan officers in short time inter-
vals. Loan officers, in turn, receive a large share (often more than half) of their
pay as variable bonuses that depend on their success at enforcing the on-time
repayment of loans, ensuring no principal-agent problems, and preventing soft-
ness vis-à-vis borrowers. If one borrower in a meeting of thirty or forty people
is late with repayment, loan officers will usually sanction the entire meeting, for
example by making all borrowers wait until the one overdue borrower is able to
get money from somewhere.
The most famous disciplining device is, of course, the so-called social collat-
eral used in group lending, whereby MFIs lend to groups of (usually between
five and ten) borrowers and get neighbors and acquaintances to do most of
the observation and disciplining for the MFI. Often these “solidarity groups”
are the ones harassing borrowers, taking down their houses (Karim 2008), or,
worse, kidnapping children (Times of India 2010). Though the use of such harsh
means is the exception rather than the rule, borrowers are constantly aware of
the potential consequence of not meeting the expectations of the capital mar-
ket, which is the confiscation of their social capital, and therefore they work to
“keep their ducks in a row” and, if necessary, even take additional loans from
moneylenders to maintain the semblance of being solvent. Being bad-mouthed,
shunned, degraded, or expelled by friends and acquaintances as a result of
unpaid debts is a serious punishment for people who depend on support from
and solidarity with their communities.
Ultimately, the true power of these disciplinary devices lies not so much
in their capacity to punish as in their normalizing of individuals’ behavior:
“technologies of the self ” are employed by individuals who self-monitor and
self-discipline (Merquior 1991, 108). If active techniques of punishment have
to be used at any stage (which is comparatively rare), this occurrence marks a
failure of the system, which normally renders active techniques of punishment
obsolete. The business of microfinance is built on the self-monitoring and self-
disciplining of all actors involved: the best way for a debtor to avoid “house
breaking” or harassment is to repay loans on time, even if this repayment
requires going to a moneylender, drinking less tea, or not letting the family eat
before repayment day. In turn, loan officers must visit every village on schedule
and enforce repayments on time; branch office heads seek to monitor their own
branches’ performance closely; MFI leaders work to uphold regular and high
financial flows, and so on. This chain of financialized governmentality, which
exerts power over all actors involved, is the real force behind the famous 95 to
98 percent on-time repayment rates of the microfinance industry.
Ways Forward: Where Should We Go from Here?
As we have argued, no one really knows under what circumstances, and for
whom, microfinance has been and could be of real benefit, which is a problem
given its prominence in contemporary development and poverty-alleviation
efforts. We need more and better research if we are to understand the impacts of
microfinance on the lives of the poor, as well as the underlying mechanisms that
account for these impacts. Presently, the research does not support a claim of
widespread poverty reduction through microfinance; rather, it is equally likely
that microfinance activities have little impact or may even be part of a cycle that
perpetuates poverty by, for instance, disciplining borrowers into making regu-
lar payments into the financial system. Knowing that the poor pay heavily for
the microfinance services they receive, we find it particularly disappointing that
we lack evidence of them benefitting from such transactions. The fundamental
problem is that we still do not know what microfinance does for poor people,
yet so much microfinance is being done.
Other sectors of development activity may also have been relatively disadvan-
taged by an ill-informed enthusiasm for microfinance, and it might have been
more beneficial to explore alternative interventions over the last decade or so. In
other words, we may never know whether the microfinance hype has diverted
attention from other potentially beneficial interventions (such as targeted wel-
fare programs, programs encouraging small-scale agricultural growth, and so
on). But the issue of opportunity cost is particularly salient given the already
inflated state of the global financial system in which significant resources have
been devoted to expanding financial markets into new areas and populations
through microfinance.
Roodman (2012, 13) writes, “I tend to lose patience with those who get excited
about what microfinance does not do while exhibiting less curiosity about what
it does do.” So what can microfinance be shown to do, and where we should go
from here? First, microfinance can and does expand the breadth and depth of
the financial market; Roodman (2012, 226) acknowledges this fact when he says
that “the greatest strength of microfinance has been in building industries that
enrich the fabric of nations.” This expansion of the financial market, in turn,
entails the extraction of surplus labor from borrowers and the production of a
specific discipline (governmentality). Whether the impact is positive or nega-
tive is a matter of perspective; however, we are skeptical. Second, the present
state of research leaves us at best ambivalent about the question of whether
microfinance can or does reduce poverty and empower women.
We need to reinvestigate existing microfinance impact evaluations and more
carefully scrutinize the robustness of their claims that microfinance success-
fully alleviates poverty and empowers women relative to alternative pathways to
well-being for the poor. The alternative to microfinance is not, as current studies
usually imply, to do nothing at all. We have learned that the financial lives of the
poor are often characterized by patterns of borrowing from a range of sources

(Guérin, Morvant-Roux, and Villareal 2014). Thus, new studies in particular
have to investigate the impact of microfinance versus its alternative(s), such as
borrowing from other formal and informal sources of finance or, more broadly,
investment in a range of developmental projects targeted at the poor. We need
more independent and rigorous research using a multitude of research designs
and analytical methods that exist alongside each other. Redistribution-based
poverty-reduction strategies like basic income grants or cash transfers—instead
of programs like microfinance or “social business,” which are always premised
on the poor themselves carrying the costs of the intervention—should be tested
and evaluated in more different settings (Hanlon, Barrientos, and Hulme 2010).
And we should also learn from the microfinance experience not to fall for yet
another development fad as easily as we appear to have fallen for this one.
Notes
1. Systematic reviews are comprehensive literature reviews that claim to be

unbiased, rigorous, and transparent. See Mallet et al. 2012 for details.
2. Compare this logic with Donald Rumsfeld’s statements on the “absence of evi-
dence” for weapons of mass destruction in Iraq (Mader 2013a).
3. We make no claim here that a perpetuation of poverty is deliberate or even that

the microfinance system is necessarily to blame, simply that persistent poverty
is one logical explanation for a persistent demand for microcredit.
4. Yield is a routinely used proxy for effective interest rates; more precisely, it is
similar to a gross margin, or the total income earned over a period divided by
the average portfolio over the same period. It does represent not a standardized
figure for interest cost, like an annual percentage rate (APR), but an estimate of
the money taken in by MFIs relative to what they lend out; a yield of 30 percent,
for example, means that for every US$100 loaned, US$130 was paid back in.
5. This is among the 885 MFIs that reported yield; 20.2 percent of the global
microfinance loan portfolio was reported without corresponding yield figures.
6. For details and methods of calculation, see Mader 2015, 115–17.
7. The direct and indirect use of subsidies in microfinance is well documented and
suggests that many ventures are not directly profitable and that many returns
may not be passed on to the capital provider.
8. It is worth noting that the estimate of US$19.6 billion is higher than the debt
service of the government of Greece, which paid only €13 billion (US$16.6
billion) for its debt in 2010, despite owing a much larger €329.3 billion (US$419.5
billion) at the time. The Greek government’s debts are said to be “systemically
important.” This indicates the scale of the payments and the potential relevance
to investors (see Mader 2015, 115–19).
9. Governmentality is a concept developed by Michel Foucault to conceptualize

the indirect techniques through which organizations and governments lead and
control individual behavior. The exercise of “power-knowledge” in organized
relationships creates “disciplinary individuals” who act in a self-controlled man-
ner due neither to force nor to consent, but out of an ingrained acceptance of
authority (Merquior 1991, 108–18).
Part Two
Seduction
Chapter Three
Pop Development and the Uses of Feminism
Meena Khandelwal and Carla Freeman
Introduction
This chapter considers the ideological foundation that makes microfinance one
of the most popular development policies in history. What are its claims, and
why do they have such broad appeal across the political spectrum? We explore
these claims using examples from the “pop development” discourse that cir-
culates in the West/Global North/developed world and ask in particular why
a “rescue narrative” is so endemic to the way that microfinance operates in the
service of neoliberal capitalism. One answer to this puzzle lies in the focus of
microfinance on women as both vulnerable subjects and agents of economic
change. Microfinance advocates mobilize the language of liberal feminism in
their claims to advance the interests of women the world over.
So pervasive and seemingly self-evident are the assumptions of pop devel-
opment, and in particular its mission on behalf of “third world women,” that its
contradictions, complexities, and failure can seem threatening. How can such
noble intentions be wrong?1 Catherine Lutz and Jane Collins (1993) demonstrate
how imagery found in National Geographic magazine reproduces subtle, endur-
ing reverberations of power and race in history. They seek to understand “what
popular American education tells Americans about who ‘non-Westerners’
are, what they want, and what [Americans’] relationship is to them” (Lutz and
Collins 1993, xii). We turn a similar lens on microfinance. With the blurring
of philanthropy, international aid, and consumer marketing campaigns, the
entangled discourses of pop development, liberal feminism, and neoliberal
capitalism are expressed by a perplexing group of bedfellows: nongovernmental
organizations (NGOs), pop stars, journalists, corporate elites. Development is
being democratized. No longer the monopoly of economists and other experts,
49
50 Meena Khandelwal and Carla Freeman
it is increasingly offered as something ordinary people and movie stars alike can
do through charity-driven efforts. The documentary Half the Sky, (RED), and
Kiva are just a few examples of this trend, which we will discuss.
Lost in these convergent interests and campaigns are the knotty and some-
times contradictory interests at stake, the legacies of history, and the complex
power dynamics—of gender, class, caste, ethnicity, race, religion, sexuality, and
so forth—operating both within the collectivities at hand and between these
and intervening agents. Feminist research has provided many fine-tuned, geo-
graphically and historically contextualized studies of gendered agendas and
consequences of development. Our approach is one of broad strokes, drawing
examples from colonial and postcolonial periods and from different regions of
the globe. An analysis of the pop development discourse about microfinance
necessitates this kind of intervention, and we analyze the twin narratives of
rescue and female heroism, then show how they converge around a third, an
emancipatory vision of women’s entrepreneurship. Our analysis relies heavily,
therefore, on lessons learned from critical development, postcolonial, and
transnational feminist scholarship.
Liberal ideology valorizes the individual subject, who is a free and respon-
sible agent unburdened by the constraints of tradition; she enacts autonomy,
choice, self-making, political and civil rights, and the ability to move unre-
strained in the world. The microfinance agenda incorporates a value-added
message of women’s empowerment through employment and entrepreneur-
ship. In fact, feminist scholars have critiqued the heroic image of women as
strong and resourceful economic actors when it also renders the structural fea-
tures of capitalist patriarchy invisible. In the United States, capitalism is equated
with liberalism, democracy, and modernity. Microfinance is promoted as the
perfect convergence of these ideals, exemplified in the New (Entrepreneurial)
Woman. This process is reminiscent of both colonial and nationalist histories in
which patriarchal agendas are advanced in the name of women’s rescue, status,
uplift, protection, and, today, empowerment.
Background
What is it that makes microfinance one of the most popular development poli-
cies of the last century? What are its claims, and why do these claims have such
broad appeal across the political spectrum—among liberals, conservatives, and
progressives? The emotional and moral appeal of microfinance generally, and
Pop Development and the Uses of Feminism 51
microcredit specifically, hinges upon a particular discourse of individualism

with a notably feminine profile. Poor third world women who are the subjects
of microfinance and its diverse supporters (including well-intentioned, edu-
cated, liberal feminists, students, and activists) are positioned within a familiar
structural arrangement, both materially and discursively. We argue that micro-
finance’s emphasis on women as the engine of economic development performs
a particular kind of emotional work while simultaneously masking structural
power relations. If this collection as a whole examines the economic technolo-
gies and social and material impacts of microfinance, our chapter focuses on
a long-standing discourse—the promise to liberate women in the developing
world—that makes microfinance so appealing, even, and perhaps especially,
among progressive-identified activists around the turn of the twenty-first
century.
A striking contradiction shapes Euro-American interventions in other parts
of the world, including the active promotion of microfinance. On the one hand,
the impulse to rescue those deemed in need of help through private charity
and foreign aid both results from unequal relationships and reproduces them
in the form of givers and recipients, benevolent patrons and dependent poor.
This relationship creates both victims and saviors. The classic colonial trope
identifies poor women in colonized (now “developing”) countries as exemplary
victims, backward but virtuous. On the other hand, the persistent belief in the
virtue of pulling oneself up by the bootstraps through market-based activi-
ties emerges from liberal individualism and the assumption that independent
initiative is rewarded in societies that call themselves egalitarian and merito-
cratic. Microfinance, we suggest, produces a new narrative in which those same
women emerge as heroes who transform what was once reproductive labor
into productive, remunerated work that fulfills economic goals. As celebrated
in Sheryl WuDunn and Nicholas Kristof ’s film Half the Sky, they are agen-
tive, frugal, responsible actors who can solve the world’s development problems
through a deeper engagement with the market and without a broader structural
accounting of poverty. Indeed, they are iconic entrepreneurs. Victims become
heroes within their own communities, while the microfinance advocates who
hail them, and write their stories, become heroic figures in the moral economy
of liberal philanthropy.
Microfinance emerged as a new development strategy alongside a new
emphasis on NGOs as the agents of development and new focus on women’s
empowerment as both a means of broader development and its goal. Since the
1980s and partly in response to state dysfunction, international financial insti-

tutions, states, foundations, development professionals, and many activists have
embraced NGOs as efficient, democratic, and able to mobilize people at the
grassroots level. Critics suggest that development experts, and now NGOs as
key agents of development, depoliticize poverty by framing it as a problem that
can be managed through technological interventions (see Escobar 1988; Lang
1998). They express concern about the last two decades, when NGOs, voluntary
organizations, and private foundations have come to operate as de facto gov-
ernments (Ferguson 2009, 168; Karim 2011b). This change signals the success of
neoliberal policies, which valorize private enterprise as both more efficient and
more effective than the state; one result is that many functions previously per-
formed by governments are privatized or made the responsibility of civil society
organizations and “social enterprises” (see Bateman and Novković, chapter 6,
this volume). In the post–World War II era, international NGOs (INGOs) have
become key players in humanitarian and development work; they are impor-
tant sites through which people in developed countries learn about social prob-
lems in developing countries and learn to care about strangers in distant lands
(Schwittay 2015; Redfield and Bornstein 2010). INGOs thus play a crucial role
in any understanding of popular development discourse.
That microfinance is heavily promoted by nongovernmental and charitable
organizations as a means of empowering women through market-based eco-
nomic activities is not a coincidence, for these are deeply intertwined processes.
While some NGOs have emerged from grassroots movements and have brought
new perspectives to international decision making, international organizations
such as the World Bank and International Monetary Fund have actively pro-
moted NGOs to alleviate the suffering caused by market-oriented reforms and
the rollback of government services and have praised them as more efficient,
effective, and democratic than states. However, researchers have identified
problems with the way in which NGOs have become the site for development,
political claims, and advocacy work (Ferguson 1990; Escobar 1988; Lang 1998;
Fisher 1997; Alvarez 1998). First, NGOs focus on single issues that are to be
addressed as isolated problems in the context of short-term funding cycles.
Second, the organizations themselves become more and more professional-
ized and hierarchical. Third, the organizations often find themselves competing
for donor funds, making collaboration more difficult. Fourth, when organiza-
tions depend on grants rather than membership dues, accountability shifts to
donors rather than to those being helped, which strengthens vertical ties but
may weaken horizontal ones. Even if recent work suggests a more nuanced
and contradictory process of NGOization, NGOs are not particularly radical in
form; indeed, it is precisely because they mimic state bureaucracy yet can more
easily operate with nonunionized, low-wage, and flexible labor that they have
become favored recipients of development funding.2 The NGO boom of the
1990s was part and parcel of a broader process of privatization of the state and
did not escape the dynamics of geopolitical inequalities. Microfinance, the rise
of NGOs, and the emphasis on women are all connected.
Pop Development
The rise of microfinance as an idea and development strategy cannot be sepa-

rated from the NGO boom, and many NGOs depend on grants and philan-
thropy to do their work. This means that an understanding of the popularity of
microcredit necessitates an exploration of its appeal to donors and an interna-
tional public. Others have provided rich critiques of the impact of microfinance
on borrowers (Rankin 2001; Karim 2011b; Keating, Rasmussen, and Rishi 2010;
Bateman 2010; Sinclair 2012a). Here, we consider its particular appeal among
donors. Why are so many people moved, emotionally and morally, to support
microfinance? Charity-driven development assuages guilt and offers opportu-
nities “to do good” but rarely offers analyses of the forces that produce and sus-
tain poverty. Nor does it trace out the many ways in which the economic and
environmental costs of middle-class and elite lifestyles are shifted to marginal
populations in the developing world and their disenfranchised counterparts
within wealthy societies. Instead, it suggests that donations are the solution,
especially donations that can help a poor third world woman pull herself, her
children, and her country out of poverty. Such an approach does little to dis-
rupt the lives of donors or to draw attention to global economic structures that
disadvantage those in the developing world. By privileging individual stories,
these campaigns act to personalize and individualize poverty and its solution:
you, the privileged individual, can make a difference by intervening in the life
of this poor woman.
Michelle Rowley (2011) observes that the (RED) campaign targets stu-
dents who come to identify consumption as the appropriate response to global
poverty and disease (Ponte, Richey, and Baab 2009).3 This campaign and others
naturalize market solutions by recasting the individual consumer as an agent of
development and development itself as a branded product that is sexy and hip
(Rowley 2011). In their analysis of development fund-raising, John Cameron

and Anna Haanstra (2008) trace the shift from “poverty porn,” sensational-
ized images of suffering that were ubiquitous in the United States from the
early 1900s until the 1980s, toward “development made sexy” campaigns that
are upbeat, youthful, and hip. The latter fund-raising strategy shifts the focus
from the victim to the donor but in problematic ways. The donor’s benevolence
is driven by “doing good” through consumerism and charity, such that activi-
ties compatible with capitalism are made sexy in a way that precludes any deep
understanding of the forces that produce and sustain poverty (Cameron and
Haanstra 2008).
What is the appeal of charity-driven microfinance to Euro-American donors?
Historicizing the shift from alms to philanthropy, Erica Bornstein (2012, 25, 37)
argues that Western alms-giving was defined as traditional, erratic, impulsive,
and without long-term effects until it was transformed by Calvinism into phi-
lanthropy, a form of giving deemed to be more modern and rational. Philan-
thropy seeks long-term change, as suggested by the oft-quoted proverb, “Give a
man a fish and you will feed him for a day. Teach a man to fish and you will feed
him for a lifetime.” The feminist version used by several women’s organizations
goes something like this: If you give a woman a fish, she will feed her family
first and might go hungry. If you teach a woman to fish, she will feed her family
until outside forces take away her fishing rights or pollute her lake. If you help
a woman buy a lake, she will feed her family, keep the lake clean, and pass it on
to future generations.4 Bornstein (2012) argues that Christian ethics insist
on giving to the poor, implying that philanthropy should ideally be practiced
on abstract others rather than on kin or known people. Philanthropic logic sug-
gests that giving to those who are far away is pure in the sense that it is deemed
to be disinterested and altruistic; however, this logic also means that the recipi-
ents of charitable giving have no right to make claims on donors (Bornstein
2012, 23). Thus, disenfranchised people receive assistance from NGOs that have
become vectors of development aid, but they cannot make demands, while
organizations are expected to be more accountable to donors than to those they
aim to help.
Half the Sky, a documentary and book by journalists Kristof and WuDunn,
exemplifies both the widespread appeal of pop development discourse and its
problems. Wildly popular among liberal-leaning Americans for finally bring-
ing attention to women’s problems worldwide, the book captured the imagina-
tion of the New York Times readership, and the film has reached even broader
audiences. But despite its purported aim of illuminating global problems of

poverty and the particular plight of poor women around the world, Half the Sky
effectively consolidates US nationalism.
The film has been widely screened in the United States, often at events spon-
sored by feminist organizations. Two hours long and organized into ten conve-
nient segments, the film focuses on women’s suffering in different developing
countries. In each segment, an American celebrity accompanies Kristof on his
journalistic adventure: we observe a female celebrity observing “third world”
women suffering child sex work, female circumcision, and other horrors and
tacking back and forth between voyeurism and empathy. Poverty and pain are
clearly situated in exotic, non-Western cultures and geographies. No segment
explores European or American women’s concerns related to the culture of
rape, sexualization of young girls, practice of self-cutting, or lack of access to
childcare or reproductive health care, for example.
Half the Sky draws attention to the tragic circumstances of women elsewhere
and positions US women (like the filmmakers) as liberated models of empower-
ment within an egalitarian and more civilized culture while consistently avoid-
ing educating its audience about the historical causes of third world women’s
problems: the colonial legacy, anticolonial nationalism, internal class and gen-
der politics, structural adjustment policies. Instead, the film remains fixated on
a seemingly primordial patriarchal culture. No suggestion is made of shared
problems such as rape, militarization, and environmental toxins. Western femi-
nists take it upon themselves to help but do not invite third world women to
join their struggles at home (Nnaemeka 2005). Indeed, such cross-border col-
laboration is rendered unimaginable (see Durham 2014, 12). Nor are viewers
made to feel that a more just world may require them to change their own
lifestyles and governments. An analysis of transnational political economy is
precisely what is missing from Half the Sky.
In one segment of the film, for example, Kristof and his celebrity companion,
Diane Lane, travel to Somaliland to explore the problem of maternal mortality.
The audience meets a remarkable Somali woman, Edna Adan, who explains
the link between female circumcision and risky childbirth. She works to train
midwives in order to reduce maternal mortality in her country. However, when
Kristof and Lane interview a woman who actually performs circumcisions, she
explains that “cutting” is her only source of income and so she cannot abandon
it. Lane asks, through an interpreter, whether she would retire from this work if
she were financially compensated, and the woman says she would. In the next
scene, Lane, visibly distressed, articulates her epiphany to the camera: “This is
a capitalist venture. Call a spade a spade.” This stunning comment, confusing
livelihood with capitalism, is just one place where Kristof passes up the oppor-
tunity to provide much-needed economic analysis and to popularize insights
from feminist scholarship on the sensationalized issue of female circumcision
(see Nnaemeka 2005; Korieh 2005; Hodgson 2011). More than simply a missed
opportunity, it employs the rhetoric of women’s empowerment without even the
most basic critique that might prompt us to ask what has led to this woman’s
dependence on cutting for survival. What are the historical causes of poverty
and women’s poor health in this region? How and why did female circumcision
come to be accepted as tradition? Do Somali women see this practice as their
biggest problem? Why is the state ineffective? Kristof draws attention to issues
of feminist concern but never engages the scholarship that would offer genu-
ine insight. Would serious investigative journalism and analysis put at risk the
popularity of his simple message? At a time when academics face the entrepre-
neurial mandate to market themselves as “public scholars,” how is it that voices
of these popular “experts” are prioritized in the New York Times?
In essence, Half the Sky offers variations on the familiar Western stance that
some societies are barbaric, that our policies have nothing to do with their prob-
lems, that their treatment of women is the barometer of their less advanced
state, and that Westerners are positioned to produce accurate knowledge about
the developing world even when they know little about those places. After
twenty-five years of sophisticated analysis of globalization, the simplistic, exoti-
cized portraits of “others” who stand in desperate need of “our” rescue remain a
caricature with great market appeal. Here, an old message about “us and them”
is wrapped up in an entrepreneurial neoliberal rhetoric that has much emo-
tional currency and has been key to microfinance establishing itself as the main
development intervention to promote women’s empowerment.
Liberal and Neoliberal Feminism
Advocates deploy the discourse of liberal feminism to sell microfinance as an

idea and policy that serves the interests of women. Liberal feminism, as noted,
valorizes autonomy, choice, and individual responsibility. According to this
vision, the liberated woman, unburdened by the constraints of tradition, is able
to operationalize a long-denied “right” to engage in entrepreneurial activities
mediated by market realities. Liberal feminism, notes Hester Eisenstein (2010),
promotes work as liberation, as a path to achieve the goals of individualism and

self-development. Second-wave feminism in the United States came to mean
the right to participate in markets and paid work but then had to grapple with
issues of race and class; less privileged women had long been involved in wage
labor, albeit on highly unfavorable terms. White liberal feminists have tended
not only to equate independence with wage labor but also to define equality in
terms of fertility control and sexual liberation. The consequences have not been
uniformly advantageous for women, even in the context of highly developed
states. In the United States, women’s willingness to enter the workforce in large
numbers allowed the abolition of family wage, and the idea that women, includ-
ing mothers of young children, should participate in the paid workforce helped
push welfare reform (Eisenstein 2010). Ironic and contradictory confluences
include women’s desire to participate in the labor force, households’ need for
a second wage, and the lack of adequate childcare, maternity leave, and other
social supports; all are well documented in the scholarly literature.
Feminist scholars have also studied liberal feminism’s influence on other
parts of the world and demonstrated the need for cultural and historical speci-
ficity in analyses of the gender of labor and capitalism. One goal of capitalism
is to intervene in all premodern economic formations that are seen as unrecep-
tive to capitalist economy, foreign investment, and individualistic consumer
culture. Thus, land held in common and subsistence agriculture are problems
for globalizing interests (see Paprocki, chapter 15, this volume). Liberal femi-
nism functioned like Christian missionizing during the colonial period, and the
image of the liberated Western woman has continued to justify interventions in
the name of helping women (Eisenstein 2010).
If economic liberalism co-opted feminist thinking to promote the incorpo-
ration of postcolonial populations into market relations on terms defined by
wealthy countries, then what of neoliberalism? Liberal feminism focused on
getting women out of the home through employment in the formal economy,
but neoliberal policies aim to promote freedom from an ineffective and patron-
izing welfare state. If liberalism pushed for flexibility in global workplaces via
women’s cheapened labor, then neoliberalism’s innovation is to valorize entre-
preneurship and thus, implicitly, the informal economy, which is the most flex-
ible of all spheres.
This neoliberal innovation fits nicely with the microfinance agenda, which
promotes women’s empowerment through market-disciplined employment
and entrepreneurship (Freeman 2014). The “frontier capitalism” approach of
microfinance provides people loans to undertake activities that are mainly

domestic in nature—food vending, needlework, and running small-scale hair
salons and clothing “boutiques”—even when goods and services are sold out-
side the household; such loans are used primarily for informal sector jobs and
are always constrained by domestic responsibilities (Moodie 2013, 289). Indeed,
many microfinance institutions target women not already engaged in business
and encourage them to become involved in trades and commodities that are
constructed as feminine and that are largely home based (Sengupta 2013, 292).
Microfinance is the perfect convergence of these ideals, which are exemplified
in the New (Entrepreneurial) Woman, despite feminist concerns that the image
of women as strong and resourceful economic actors typically hides persistent
structural features of capitalist patriarchy.
The Rescue Motif
The impulse to rescue—and to rescue women in particular—has long served

to motivate or justify a wide range of projects from military interventions to
imperial and religious missions, foreign aid, volunteer work, and private phi-
lanthropy. The figure of the burka-clad Muslim woman was employed, minus
any historical or political analysis of Afghan women’s problems or the rise of
Taliban, to justify the US bombing of Afghanistan (Abu-Lughod 2002). From
the global War on Terror has emerged an increasing focus on Muslim women
as uniquely oppressed. However, Eisenstein (2010, 424) argues that feminist
rhetoric was co-opted by capitalist efforts to target not Islam per se, but all social
forms unreceptive to the rise of capitalist economy. Rescue narratives justify
not only military interventions but also activist projects that are liberal, pro-
gressive, and market based, including those of human rights (see, for example,
Hodgson 2011).
Kiva.org is one of the most popular points of contact between donors and
the microfinance industry. Kiva’s peer-to-peer lending website traffics in images
with deep colonial and missionary roots: a distant “third world woman” becomes
a symbol of the problems of poverty and underdevelopment, and a donor’s sup-
port of her shifts attention away from the violence of capitalist exploitation (see
Bajde, chapter 5, this volume; Moodie 2013, 294). Kiva’s facilitation of a virtual
relationship enables lenders to simultaneously feel emotionally connected to
the individual borrower in a poor country (most frequently a woman) while
distanced from any potential harmful effects caused by the debt she incurs
(Moodie 2013, 280). This kind of charity successfully mobilizes people though
the language of women’s empowerment, a term that originated in struggles for
systemic change but has come to be individualized (Batliwala 2007). It speaks
the language of feminist optimism and social justice while placing the burden
of change and the risk of debt on poor women themselves. Debt is not always
or necessarily disempowering. Indeed, empirical research has detailed systems
of reciprocal or rotating credit that have emerged organically among women in
different parts of the world and that can operate in relatively egalitarian ways
(Busby 2000; Salamon, Kaplan, and Goldberg 2009; Velez-Ibañez 2010). In con-
trast, externally diffused models of microfinance as development are starkly
asymmetrical, for donors themselves avoid political or financial risk.
The construction of poor and colonized women (and children) as objects
of rescue persists among donors despite four decades of critiques offered by
postcolonial and feminist scholars. Transnational feminists have further shown
that it is the poor third world woman against whom the first world woman
is defined—albeit implicitly—as already in possession of freedom and agency
(Mohanty 1986; Kaplan 1995; Arora-Jonsson 2009; Dahl 2007). The rescue
narrative feminizes the “undeveloped” world generally, and when focused on
women, this narrative heightens the urgency and the seductive rescue imagin-
ings of the project at hand.
The trope of rescue relies on assumptions, often implicit, about the cause of
women’s suffering and locates the source of the oppression from which third
world women need to be saved in the backwardness of their own men, their
religion, or their culture (Narayan 1997).5 The US invasion of Afghanistan is a
case in point, for it exemplifies the imperative to modernize and educate girls
and women and to protect them from violent, traditional men. Their problems
are seldom attributed to the exploitation of their labor, the extraction of natural
resources for the enrichment of corporate elites or the comfort of the middle
classes, the unequal distribution of land, the privatization or enclosure of com-
mon resources like pasture or water, externally enforced cutbacks in services,
the trade in arms, or the devastation of their communities by bombs. Micro-
finance discourse is founded on a misapprehension of women’s problems in
developing countries.
The rescue trope in pop development discourse is often tied to charity-
driven development interventions. Since the global War on Terror, they have
been most energetically focused on Muslim girls. While Greg Mortenson and
David Oliver Relin’s (2007) book Three Cups of Tea was eventually exposed
as fantasy (Krakauer 2011), I Am Malala by Malala Yousafzai (2013) electrified

Western audiences, who could then righteously point to the Taliban as the
enemy of girls while ignoring the harm done to girls and their families by mili-
tary drones in the name of women’s rescue. Post-9/11 rescue narratives propose
liberal, capitalist modernity and individualism as solutions. They suggest, for
example, that the heterosexual nuclear family based on companionate mar-
riage will liberate less-developed populations from premodern kinship systems
and also that market participation will liberate women from their patriarchal
religious, familial, and cultural traditions. In cases where women’s oppression
is blamed on corrupt governments, liberal democracy is what will free them.
Inevitably, the West is the model.
In colonial narratives, native women were defined a priori as victims and
without regard to the specifics of their situations, revealing a logic that marked
them as less advanced and in need of intervention. Since then, argues Pamela
Scully (2011), the figure of the abject African woman who requires protection
and liberation has been used for different purposes at different times. European
colonial administrators and missionaries were appalled to discover women’s
participation in agricultural labor and their role as traders, especially in West
Africa, for Europeans were coming from societies that were newly emphasiz-
ing women’s place in the private sphere. The colonial era saw the consolidation
of a sociological portrait of the African woman as a beast of burden who had
to be rescued from the patriarchal husband and family (Scully 2011, 21–25). In
colonial South Asia, the native woman was also rendered an object of pity but
for different reasons. Women who observed (various degrees of) seclusion sig-
nified a culture oppressive to women because of their apparent confinement to
a home that was assumed, often erroneously, to be separated from the world
of politics and economics. Ironically, but in accordance with a twisted colo-
nial logic, courtesans and temple dancers—who existed outside the patrilineal
family structure, relied on royal patronage, and owned substantial property in
their own names—were deemed prostitutes in need of reform first by colonial
officials and missionaries and then also by Indian reformers (Oldenburg 1990;
Sharma 2007). Thus, the colonized woman was always, and had to be, an object
of pity. Paradoxically, African women were seen as oppressed because of their
centrality to subsistence agriculture and entrepreneurial activity, while South
Asian women were similarly pitied for their noninvolvement in agriculture and
commerce. Despite these contradictions, the rescue narrative had become natu-
ralized in Euro-American societies by the twentieth century.
The Hero Motif
If the rescue narrative constructs women as passive, vulnerable objects of local

patriarchy and cultural backwardness, the heroic woman narrative places the
burden of fixing conditions of underdevelopment on the backs of these very
women, drawing upon essentializing notions of female altruism and investment
in the family in contrast to male selfishness. This view of poor women in devel-
oping countries as resourceful and resilient rather than passive and vulnerable
operates in two registers. On the one hand, it offers a corrective to the idea of
the vulnerable, oppressed third world woman who appears to have no means
of protection or support. Here, womanhood in the non-West or “Global South”
is rectified from passivity and is cast instead as robust, valiant, entrepreneurial.
On the other hand, the narrative’s highlighting of the independent agency of
this strong and savvy economic figure also lets many other institutions—the
state, for instance—off the hook. They are not held accountable for ensuring
access to basic necessities, providing public infrastructure, and enforcing regu-
lations that protect common resources.
The expansion and extraordinary appeal of microfinance as a development
model is integrally related to its feminine face. The giving of small loans to seed
entrepreneurial enterprises not of poor people but specifically of poor women
is carefully packaged as a panacea for the ills of poverty and underdevelop-
ment. So seductive is this tactic that few would question what appears to be
self-evident: women are economic agents with a unique capacity to uplift their
households and communities. Crafted to appeal to donors and to fit closely
within the “gender mainstreaming” agendas of government and nongovern-
mental organizations, the microfinance model includes an intimate and inspi-
rational narrative of steady work, self-sacrifice, and success not for the benefit
of the individual woman alone, but, most importantly, for her children, family,
and, therefore, the future.
This narrative of women’s heroic strength, management skills, and altru-
ism did not originate with Kristof and WuDunn’s Half the Sky.6 The mandate
to enhance women’s access to the fruits of development has existed since the
1970s. Beginning with the publication of Ester Boserup’s classic Women’s Role
in Economic Development (1970), research from several stages of “women and
development,” “women in development,” and “gender and development” per-
spectives has documented and interrogated economic initiatives aimed at alle-
viating poverty and empowering communities across the “developing” world.
Boserup herself turned attention to women’s activities in subsistence econo-

mies. She demonstrated that women’s subsistence work in African and Latin
American societies was critical for households and rural sectors, despite their
distance from the key ingredients of development: capital and new technolo-
gies. If women could be “incorporated” into the development process and given
access to wages, education, and new technologies, it was assumed that they
would share benefits long held by men.
Building upon this work, scholars such as Lourdes Beneria and Martha Rol-
dan (1987) showed that women in diverse social and economic contexts tend
to devote a high proportion of the income they earn to the well-being of the
family at large, whereas men are apt to squander more resources on themselves
and their friends. Indeed, women were found to be more efficient in their use
of resources, suggesting that children raised in female-headed households may
fare better than those in other household forms since women have greater con-
trol over the household budget (Espinal and Grasmuck 1997, 104). This finding
that women spend in “altruistic” ways is a powerful anchor for the microfinance
industry. Importantly, these studies drew attention to the internal dynamics of
households, suggesting that they are not singular and cohesive units but rather
marked by unequal access to resources and power. However, one of their unin-
tended consequences has been to reify cultural feminist notions of women’s
inherent moral superiority, undergirding what Halley and colleagues (forth-
coming) describe as “governance feminism.”
This heroic woman narrative explains why the microfinance agenda is so
appealing to educated, critical activists, including feminists. The new woman
that microfinance promises to create is not simply empowered and thus
“modern,” but also independent and inspiring to many liberal feminists. The
empowered woman (a variation on the new woman) is rhetorically potent pre-
cisely because it is a trope with positive value but amorphous and shifting con-
tent. The presumed economic individualism and autonomy of the empowered
woman sit uncomfortably with her power to “lift half the sky” and hold up
those around her. This vision also fails to consider local gender relations that, as
Lamia Karim (2011b) shows, may enable men to use women’s privileged position
in lending schemes to advance their own agendas; in some cases, microfinance
may reinforce old-order patriarchies and worsen conditions for women. Much
like “modernity” or “freedom,” the “empowered woman” is a slippery concept,
a contradictory signifier. History tells us that the “new woman” has been used
to promote multiple and antithetical agendas by colonials and nationalists, by
liberals and neoliberals, by liberal feminists, and by antifeminist advocates of

family values.
The Entrepreneurial Woman Motif
The trope of rescue persists in liberal ideologies, even in their feminist ver-
sions; continuities can be traced from colonial times through the project of
post-WWII development. And yet the “bootstraps” discourse of self-help is
equally powerful, particularly in the United States. The contradiction between
these two ideals—the benevolence and effectiveness of charity and foreign
aid on the one hand and the virtue of self-help on the other—is resolved by
the vision of microcredit: the poor, victimized “third world” woman–turned–
entrepreneur who helps herself, her family, and even her country. The emer-
gence of this third category suggests that women are such good managers of
households that holders of capital can easily mobilize them. By the 1990s, the
third world woman, formerly seen as a victim, had been reinvented as an eco-
nomic actor who, once empowered through microfinance, had the ability to do
what political leaders had not done—lift her country out of poverty. No longer
simply an object of rescue, she is an agent of social change, indeed the linchpin
of social change.
Though it may seem like a feminist fantasy come true, we find this portrait
troubling for its narrow focus on individual women and individual households,
its complete erasure of macrolevel policies that structure options open to them,
and its refusal to acknowledge the overarching fact that, in practice, with no
requirements for a business plan that holds together, only a small percentage of
women entrepreneurs will succeed in markets already saturated with the simple
items and services they can provide. Even in cases of women’s market “success”
that are celebrated in microfinance programs, we seldom see the complexity
of the social and affective costs and benefits, which calls for a more cautious
approach (Freeman 2014).
Accounts from the Afro-Caribbean region highlight portraits of strong
womanhood that contrast starkly with delicate, dependent femininity imagined
in much of the rest of the world and at the same time reveal the double-edged
legacy of plantation slavery. The empowered West Indian woman embodies a
robust femininity born of the sugar plantation, where male and female slaves
labored shoulder to shoulder in all of the most arduous tasks. In turn, the
notion that women constitute the backbone of not only the family (and indeed,
a majority of households in many Caribbean countries today remain headed

by women) but the nation-state both recognizes women’s hard work and for-
titude and leans heavily upon their weary backs. Indeed, feminist work from
the region has long shown that the widely acknowledged “strong black woman”
exists side by side with persistent gender disparities in public and private life
(Barriteau 1998; Freeman 2000, 2014).
Katherine Rankin’s (2001) lucid analysis of the “self-maximizing entrepre-
neur” is useful here, a new social identity promoted to help accomplish the
restructuring of development policies. In the 1990s, the World Bank began
to actively promote, in particular, a business approach to poverty lending—
reimagining the poor as entrepreneurial subjects—and, more broadly,
approaches to development aligned with lenders’ ideal of self-regulating mar-
kets and financial stability. Rankin offers an analysis of why development experts
have suddenly begun to absorb the lessons of feminist research on women’s
role in agrarian economies across the third world: women in agrarian societies
perform much of the productive labor, contribute more of their income to
household well-being, and are more likely to pay back loans. Microfinance thus
incorporates women in order to ensure the financial sustainability of micro-
finance institutions and deepen the penetration of financial markets into new
areas (Rankin 2001, 28).
Microfinance Women as a Seductive

Locus of Neoliberal Capitalism
We argue that two powerful narratives converge to create the seductiveness of

microfinance. One, the impulse to rescue poor women in developing countries
seems as urgent as ever, and two, the image of the heroic third world woman
as savior of her country and solution to poverty via integration into the market
seems like an important corrective. Both of these, and particularly the latter,
are appealing to progressive Euro-Americans and to liberal-minded feminists.
With the microfinance boom, however, a third image of the entrepreneurial
woman has also emerged.
This process is familiar, for many agendas, even those shown to be patri-
archal, are advanced in the name of helping women. Women celebrities, such
as those featured in Half the Sky, are fashioned into icons of the liberated
woman. But because equality is a core value of liberal thinking, her privilege
also presents a dilemma. She redeems herself by facilitating the “rescue” of poor
women in poor countries at the same time that she herself is transformed by her
contact with them. In Half the Sky, the larger discursive frame is delineated by
the voices of English-dominant people in positions of power in the West, who
have a privileged position in the film. While third world women are purported
to be the central characters in this account, it is the generosity of the pop stars
and the filmmakers, as well as their emotional on-screen transformation, that
forms the story with which the audience (students, public television viewers,
and the like) is meant to identify. Kristof constructs a romantic narrative in
which he emerges as the intrepid patron, the white male savior, as well as a
master narrative: gender inequality in the developing world is caused by unen-
lightened men, their culture, their religion, and their governmental corruption
but never by the predictable working out of capitalist processes that concentrate
benefits among a handful of winners.
Absent is the role of colonial history in shaping contemporary problems or
contemporary political-economic policies that disadvantage developing coun-
tries. Nor do we learn about staggering internal corruption or the ways in which
the human and environmental costs of middle-class consumption are shifted to
others. Religion and culture must be open to critical analysis, yes, but the film’s
premise is expressed in a simple comment by Meg Ryan: “These are countries
where women have very little value.” Similarly, Diane Lane concludes, “You can
judge a place by how they treat their women.” Pop development discourse con-
sistently frames acts of misogynous brutality in developed countries as excep-
tional, the result of individual pathology and mental illness, while similar acts
are seen as culturally normative when they occur in other parts of the world (see
Durham 2014 for discussion of the infamous Delhi gang rape that sparked out-
rage worldwide). How would the pop development narrative change if Half the
Sky included a segment on even just one of “our” problems, such as many men’s
sense of entitlement to sex and the chilling violence it sometimes engenders?
As for the ten segments that constitute Half the Sky, each issue might be illu-
minated by rigorous scholarship in ways that would ground women’s problems
in political-economic and social milieus without exoticizing and fixing them
as backward and other, as Half the Sky does. The liberal Western framework of
choice and individualism increasingly sets the standard by which entire societies
are judged, with no space for competing visions. Feminist analyses must undo
reductionist frameworks of “us” versus “them,” as well as the co-optation of lib-
eral feminism that undergirds pop development discourse and charity-driven
development. Half the Sky does not once in its two-hour narrative address the
transnational economic and political context of women’s problems, includ-

ing International Monetary Fund–imposed Structural Adjustment Programs.
Instead, it balances a voyeuristic glimpse into violence inflicted on women and
girls with inspiring stories of women activists who seemingly pull themselves
up out of the ashes via sheer determination and grit. Structural conditions are
supplanted by individual anguish and valor, while the entrepreneurial woman
is hailed as a solution to the world’s problems.
Microfinance is seductive and advances a form of governance feminism
(Halley et al., forthcoming) by deploying liberal, cultural feminism in the ser-
vice of neoliberal capitalism. Its traffic in gendered abstractions harnesses its
programs to women’s empowerment. However, as more than a half century of
feminist scholarship has shown, women’s lives and empowerment are relation-
ally imagined and enacted. The tropes of the third world woman—the victim in
need of rescue, the heroic woman, and the modern entrepreneur—prompt us to
imagine an individual woman, eager and malleable and amenable to the neolib-
eral agendas in which self-employment and independent enterprise meld seam-
lessly with liberal democracy. The narrative is both appealing and slippery, for
it masks the burdens borne by these women who as individuals are left with the
responsibility for lifting not only themselves but all of the social webs in which
they are embedded: families, intimate relationships, communities, nations. Pro-
moting the entrepreneurial woman helps to divest others—states, the private
sector, and other social collectivities—of social responsibilities and assuages the
liberal-minded conscience to boot.
Notes
1. The recent exposé about Cambodian Somaly Mam, who fabricated her own
story in the interest of massive fund-raising facilitated by Sandberg and Kri-
stof, exemplifies the tragic consequences of refusing to critically analyze pop
development discourse and its use for fund-raising in the name of women’s
empowerment and rescue (see New York Times 2014). In an insightful analysis
of big money philanthropy in the Somaly Mam scandal, Pollitt (2014) notes that
competition for both attention and funding fuels distortions of both problems
and their solutions.
2. For more analysis of the politics of NGOs as institutional domains, see Fisher
1997; Kamat 2004; Alvarez 2009; Sharma 2008; Swarr and Nagar 2010; and Deo
and McDuie-Ra 2011.
3. (RED) is a branding campaign aimed at raising awareness of and funds for HIV
in Africa, initiated by the pop celebrity Bono.
4. This quote, sometimes with slight variations in wording, is attributed to Chris

tine H. Grumm, the former president and CEO of Women’s Funding Network,
and widely repeated on blog posts; it can be found in the newsletters and web-
sites of women’s organizations such as The Fund for Women in Asia and Tikkun
Olam Women’s Foundation.
5. Here and throughout this chapter, we recognize the phrase “third world woman”
as a discursively constructed category that need not refer to specific geographi-
cal locations; similar symbolic frameworks may also refer to immigrant, indige-
nous, and minority women within first world contexts. Alternative phrases such
as “women of the Global South,” “women of color,” “two-thirds world,” etc., are
similarly inadequate (see Mohanty 2002).
6. Jackson (1993), for example, critiques the women, development, and environ-
ment literature for its erroneous assumption that women act altruistically to
protect and defend nature.
Chapter Four
Petit Bourgeois Fantasies

Microcredit, Small-Is-Beautiful Solutions,
and Development’s New Antipolitics
Elliott Prasse-F reeman
Introduction
The rise of microfinance from an obscure Bangladeshi nongovernmental orga-

nization (NGO) innovation (with an initial portfolio of, famously, US$27) to a
worldwide institution moving US$90 billion in loans through virtually every
pocket of the globe—and all in three decades—has been nothing short of
miraculous. And perhaps even more impressive than the growth of the industry
and the movement behind it has been microcredit’s ability to establish itself as a
commonsense pillar, perhaps the sine qua non, of this new century’s global anti-
poverty development efforts. Indeed, when Mohammad Yunus (2011), awarded
the 2006 Nobel Peace Prize for his role in founding and promoting microcredit,
went so far as to claim that poverty would be eliminated from the earth, people
listened, people believed.
Set against this promise, on the surface, the microcredit industry appears
to have been struggling through a number of rough years. Yunus has been
accused of misappropriating donor funds in order to keep his Grameen Bank
alive (Heineman 2011). For-profit (Thriani 2012) and not-for-profit (Sinclair
2012a; Karim 2011b) microfinance institutions (MFIs) alike have been exposed
as operating no differently than the usurious predators they were meant to
replace—which has correlated with increased indebtedness for millions across
the globe (Bateman 2010) and a number of farmer suicides in India (Polgreen
and Bajaj 2011). A massive platform for efficient peer-to-peer lending that
captured the imagination of the American upper middle class, Kiva has been
revealed as neither peer to peer (Roodman 2009a), nor particularly efficient
(Sinclair 2014a).1 Topping it all, a comprehensive assessment of microfinance
programs has cast the poverty-eliminating claims of the practice into serious
69
70 Elliott Prasse-Freeman
doubt (Duvendack et al. 2011a)—a conclusion generally confirmed by a set of

“highly scientific” randomized control trials (RCTs) which found that micro-
credit’s assumed tertiary benefits (“empowerment” of women, for instance)
have most often not materialized (Banerjee 2013; see also Karim, chapter 11,
and Khandelwal and Freeman, chapter 3, this volume).2
So it would seem that the panacea has been exposed as a placebo. Then again,
perhaps not. Because what has been striking is how all this bad news, or rather
any effects deriving from it, has proved more apparent than real. Insiders have
complained about the putative negativity buffeting the sector (Roodman 2011,
13), but microfinance seems to be rooted in the collective common sense as the
development solution par excellence. While it is difficult to assess the status
and contours of a symbolic order’s doxa,3 the fact that microfinance continues
to grow around the world (Etzensperger 2014), the fact that donors continue
to place it at the center of their aid strategies,4 the fact that platforms such as
Kiva.org continue to attract those upper middle-class Americans (Gourevitch
and Lake 2012, 199), and the fact that Yunus is still feted from one reception to
the next (Dickson 2013) suggest that the conversation between the development
industry and the Western donor public around microcredit is still generally a
positive one. That this volume exists at all suggests that microcredit’s coupled
sins (of commission—indebting vulnerable people; and omission—failing in
its grandiose claims to either eliminate poverty or positively alter local social
relations) have gone mostly unregistered, unconsidered, and unreflected upon
as such.
Which is to say, these sins may not be considered sins at all. Indeed, the
responses by microfinance proponents to the challenges I have sketched can be
interpreted as cynical deflecting tactics meant to protect interests vested in the
microfinance project.5 I would like to accept that possibility but also look closely
at the specific ways in which these responses have been formulated and received
in discourse. The evidence suggests a seemingly paradoxical conclusion: that
even in its failure microcredit nonetheless can remain a development success.
Or, more specifically, it can fail at the level of practice while succeeding at the
level of discourse. Even though it is now clear that microcredit will not deliver
on its founder’s promise to make a museum out of poverty, it is still able on an
affective level to act as if it will.
The following will be devoted to exploring this disjunction. I first describe
how microfinance became an end in itself (rather than remaining a tool for
what we might describe, with appropriate caution, as “development” ends), then
Petit Bourgeois Fantasies 71
explore the broader domain in which microfinance is represented and show

how the current late-liberal era invests the visionary promise of microfinance
with affect, hence deemphasizing and excusing its inefficacious or deleterious
outcomes. I will then explore the epistemic environment that has made such
representation possible, looking at the way the development project has been
evacuated of political and even explicit ideological content, which allows what
I will refer to as “small-is-beautiful” efforts to flourish. In this milieu, I will
explore a corresponding rise of the development visionary—a kind of poverty
faith healer—who has effectively replaced the political militant and even the
bureaucrat as the dominant figure in today’s development imaginary. The chap-
ter will conclude with an explanation of this transition as a function of the
growth of a global regime of biopolitics in which borders are secured, bodies
are contained, and poverty is managed, not overcome.
The Work of the “Neoliberal” Critique
Before proceeding, we should be clearer about the object of discussion, micro-

finance. On one level, microfinance is simply a tool—one that is not inherently
political or necessarily antidevelopmental. If implemented in situations where
potentially productive small-scale operations are underutilized because of bar-
riers to financial intermediation and if implemented through collective institu-
tions that socialize both risk and reward, one could imagine it being progressive
(Bornstein 2013), even radical, as, historically, cooperative finance organiza-
tions were (Mader 2011b). Even if not implemented in this inclusive way, MFIs
often tell of individuals who have undeniably benefitted from infusions of tiny
amounts of capital; these testimonials typically relay stories of microenterprises
becoming slightly larger and their profits being directed toward human capital
acquisition for clients’ offspring. At the very least, proponents’ endorsements
have converged on the idea that microfinance allows at least some individuals
to manage risk more effectively and to smooth consumption.
Yet such descriptions may not accurately describe the overall reality on
the ground (testimonials of the poor individuals who failed in their attempts
to establish a microenterprise and were plunged into debt and irretrievable
poverty as a result are rarely highlighted), or they at least elide it through their
narrow focus on successful individuals and not those who lose out by micro-
credit, either directly or indirectly. Critics hence often describe microfinance as
attempting to remake poor communities through the logics of neoliberalism: in
the economic domain, this means enrolling individuals into financial systems
that often leave them more vulnerable (and even worse off as their debt burden
outstrips their capacity to make productive use of capital); in the social domain,
this means the fragmentation of communities into a collection of economic
agents who must vigorously compete with one another to tap into a finite level
of local demand for the simple goods and services that they can provide (hence
undermining other forms of collective resistance to exploitation or foreclosing
movements to improve group outcomes).
My purpose here is not to adjudicate on microfinance’s neoliberal content.
On the one hand, anthropologist of microfinance Lamia Karim makes the com-
pelling argument that in an ecology as thick with MFIs as Bangladesh’s, micro-
finance has the ability to reterritorialize subjects along the cutthroat lines of the
market, thus undermining moral economies. Morgan Brigg (2001) and Milford
Bateman (2010), respectively, argue that that such a phenomenon is occurring
globally; Bateman and development economist Ha-Joon Chang (2012) argue
that microfinance is a neoliberal tool that also inadvertently crowds out more
productive small and medium enterprise (SME) finance options.
On the other hand, following anthropologist James Ferguson’s (2009, 169;
2015) recent work, we could ask whether microfinance is actually able to remake
local worlds under capitalist logics or, rather, if neoliberalism can be worked
through and around, its goals redirected and refracted. Anthropologist David
Mosse (2005) has found, for instance, that development projects are often
readapted and improvised at the local level. Pace those who see the world as
wholly subsumed within neoliberalism (Brown 2015), these scholars argue that
projects falling under the development aegis are rarely univocal, that they com-
municate contradictory desires in different registers simultaneously and that
these desires are inscribed within development discourse itself. As the anthro-
pologist of development Tania Li (2007) puts it, such contradictions create
“gaps” that always generate resistances, or at least negotiations, on the ground.
Yet while microfinance does not always emerge from neoliberal policies
or generate “neoliberal” effects, these neoliberal critiques of microfinance do,
counterintuitively, have value. Neoliberalism intervenes in the status of the sig-
nifier microfinance, wrenching it out of the domain of nonpolitical, technical
poverty solutions—such as, say, drip irrigation—and inserting it into the realm
of politics. Although we might imagine that a technical solution such as drip
irrigation is just as likely to be part of community-centric, sustainable agricul-
ture models as agribusiness-centric ones, the identification of microfinance as
“neoliberal” suggests that microfinance as it is practiced tends to be part of proj-

ects that share a political substrate: in patterned if not determined ways these
projects manifest certain desires about how to reorganize the world, distribute
resources, and endorse particular visions of the good.
Such politicization is critical. My point, however, is that neoliberal may not
capture all of those social imaginaries or may conjure up the wrong conjunction
of power and ideology. If microfinance is not “neoliberal” per se, what is it that
is troubling about its work in the world?
From Eradicating to Managing Poverty
In examining the microfinance industry’s discourse on itself, I found the most

noteworthy changes followed the release of Maren Duvendack and colleagues’
(2011a) RCT studies. Microfinance was no longer devoted to poverty elimina-
tion but to poverty management and was reformulated as “financial inclusion”
(see Duvendack and Mader, chapter 2, this volume).6 While critics suggest this
phrase reframes the opportunity to take on credit card debt as a human right
(Bateman 2012a), proponents soberly present financial inclusion as helping
people deal with the harsh realities of being (and remaining) poor. Roodman
(2012, 6), after an exhaustive assessment of the microfinance industry, con-
cludes that it is actually best to understand microcredit this way: “Instead of
using it to put capital in the hands of as many poor people as possible on the
hope of launching them all into entrepreneurship and out of poverty, focus
on mass-producing services to help people manage the uncertainties of being
poor.”7 This statement appears to be nothing less than a breathtaking revision of
goals. Microfinance has transformed from a revolution that would end poverty
into a palliative that makes it sting a little bit less.
But perhaps even more stunning is how the microfinance industry (and
apparently the broader public that is consuming information about it) so seam-
lessly accepted this evolution. To understand how such a shift occurred, we
must dive deeper into microfinance discourse.
A memo responding to the comprehensive evaluations and signed by a num-
ber of the largest MFIs (Grameen Foundation et al. 2010) is a good place to begin.
While those evaluations suggested that microfinance had little to no impact on
poverty—an outcome variable focused on a community (not an individual) of
interest—the memo absurdly presents anecdotes about six individual clients
who had been well served by microfinance. Such a focus on the individual is
shared by most other MFIs, and even at the macro level the industry effec-
tively retains its narrow focus on the single person: the repayment and outreach
statistics predominantly utilized to demonstrate the sector’s success are nothing
more than aggregations of all these individuals. Beyond the semiotic sleight of
hand—in which such a summation typically follows anecdotes about the exem-
plary individuals who manage to make transformative changes in their lives,
suggesting that all who repay are enjoying similar outcomes (Fenton 2010)—the
aggregation constitutes a massification of beneficiaries into percentages (Fou-
cault 2003, 242), a maneuver that insists that societies function as collections
of atomized units. The world implicitly assumed and asserted through micro-
credit’s repayment calculus is one of unbounded serialities, in which the only
constraint preventing infinite numbers of poor people from entering into and
benefitting from microfinance is the current capacity of MFIs. The problem is
that political economies are not an aggregation of individuals but complex sys-
tems in which a change in one variable affects all the others—sometimes with
negative consequences.
Even as the memo of Grameen Foundation and others suggests a continual
march toward development (a happy horde of faceless repayers reduplicating
the successes of one featured borrower), it contains another, somewhat contra-
dictory, message: the memo highlights how most of the MFIs’ work is devoted
to better managing current immiserization. Indeed, Grameen Foundation and
others highlight seven ways in which their work benefits clients, but only two
of the seven—“leveraging assets” and “making productivity-enhancing invest-
ments”—could be construed as having even potentially poverty-eliminating
effects. The other five focus on managing existing conditions.8 While poverty
alleviation is laudable, its juxtaposition with the memo’s earlier goals in which
“the poor improve their lives and begin to work their way out of poverty” pro-
duces a dissonance.
While the industry-wide move from promising poverty’s eradication to fea-
turing its management may merely reflect reactive tactics (as a besieged sector
tries to put the best face on bad news—see Bateman 2012a), it is also logically
and historically consistent with the industry’s previous strategies. The indus-
try has always consciously identified the deracinated individual as its imagined
subject, and its extension of the “opportunity” and “freedom” to engage in petty
business activities was the outcome variable that constituted microfinance’s
success (see Bateman, chapter 1, this volume). Its explicit poverty-eradication
claims could be either supplemented or displaced by this new discourse because

the individual free to participate in markets remained. More importantly, the
industry uses neither of these discourses to imagine how this liberated indi-
vidual’s society could undergo the systemic social and political change once
promised by development. Even when microfinance assured an end to poverty,
it did not actually imagine such a world, nor did it discuss the politics of that
new world. The rhythm of microfinance is hence a never-ending cycle of giving
loans and having them repaid, whether for ever-deferred social transformation
or poverty management. The easy incorporation of the latter goal suggests a
different side of microfinance: that it is not a neoliberal attempt to remake the
world, but an effect of a global biopolitical regime that manages misery (Gupta
2012).
The Circulation of Affect: Microfinance in Discourse
Yet managing misery does not excite. And even after being forced to rein in its
outsized goals, microfinance has continued to capture the collective imagina-
tion. How has this worked? While it is difficult to assess a society’s collective
assumptions about a phenomenon such as microfinance, I will use the New York
Times as a proxy for the sphere in which Western liberal, elite common sense
circulates and gets reproduced. I identified all the New York Times articles in
which the terms microfinance, microcredit, or microlending occurred, classified
them into general categories (news or opinion, for instance) that would bluntly
describe the “genre” being used to convey information on microfinance, and
conducted close readings of the texts.
A number of patterns are worth relaying. The first stories (from the late 1990s
and early 2000s) described microfinance as a revolutionary antipoverty innova-
tion and conveyed its particulars to an audience broader than the development
industry insiders who were then familiar with it. Noteworthy here is how micro-
finance was often considered a term unknown even to those publics who would
choose to read an article about global poverty—the stories glossed microfinance
by including a definition such as “small loans that help the unbanked” after its
introduction (see Weiner 2003, A8). Other articles from this period did not
need to define the term only because they were entirely devoted to describ-
ing the mechanics of microfinance (Gonzalez 2001). The tone of these articles
primed the reader to assimilate new information, which allowed the writers to
do significant performative work: they were free to choose what information

was relayed and how it was presented, all under the pretense that they were
simply presenting “the facts.” Take this statement from an early article: “Tiny
transactions like these are part of a proven strategy of poverty reduction. Across
the globe, 25 million microentrepreneurs are using loans of very small amounts
to increase their incomes and lift their communities” (Hochberg 2002). There
was no evidence to support such claims, and none was provided in the article.
But the revelatory tone combined with the author’s insider status (readers are
told he is an adviser to an MFI called Foundation for International Community
Assistance) served to disarm the reader and show that privileged knowledge
was being disclosed.
Moreover, because microfinance was at that point presented as an inspir-
ing innovation, writers could extrapolate about its possible future impacts. For
instance, in two of the Times’ first three articles about microfinance, authors
were permitted to suggest that it could fight “political extremism” (Jolis 1997).
While such a conclusion seems plausible, the opposite conclusion (that the
changes or even perceived changes in the political economy could lead to revan-
chist fundamentalist movements) is also just as conceivable. However, such a
counterfactual was not entertained by the Times.
By the mid-2000s some Times articles had begun to question the efficacy of
microfinance (Waldman 2003),9 even as others continued to spread the good
news. This period marks an epistemological bifurcation with microfinance
becoming an object for interrogation in some articles while continuing to stand
as an unassailable savior in others. Confusingly, these two patterns existed at
the same time and seemed to be directed at the same audiences. Indeed, when
inconvenient information about microfinance started to emerge it was not
ignored: news stories covered Indian farmer suicides and the related problems
of for-profit MFIs; they discussed the fraud accusations leveled at Yunus by his
political enemies in Bangladesh; and they described predatory MFIs around the
world (MacFarquhar 2010). These stories were measured in tone as they pre-
sented mostly facts about specific, discrete challenges.
At this point, the opinion section of the Times became more active, interpret-
ing the new dissonance around microfinance. Here, Nicholas Kristof, the Times
columnist covering the underdeveloped world, sought to clarify the overarch-
ing meanings of these changes. Take the accusations leveled against Yunus: the
Times news story mentions a number of (seemingly minor) irregularities that
may or may not show Yunus in new light (Polgreen 2011), but when the article
is contextualized as part of microcredit’s broader problems (Polgreen and Bajaj
2010), real questions emerge. Kristof ’s column, however, ignores these issues,
suggesting instead a petty political vendetta on the part of Bangladesh’s prime
minister. Critique is foreclosed. In another article, Kristof lauds the terrorism-
fighting effects of microcredit in Pakistan (without providing any evidence) and
ignores the scandals that his own paper was reporting at the time (Polgreen and
Bajaj 2010)—an incongruity pointed out by a number of his readers.10 The Times
editorial board for its part dismissed the possibility that microfinance did not
benefit the poorest of the poor by asserting that all people in the world would
ultimately benefit from microfinance but that some needed aid to get them to
the level where they might absorb it (New York Times 2004).
Overall, these op-eds transmitted the message that microfinance’s problems
were merely aberrations within a generally ameliorative project. Even when
microfinance was described as “not a panacea” and “not a silver bullet,” such
statements were couched within contexts that betrayed the caveat (as pointed
out by one reader; see New York Times 2010). Kristof ’s articles wove a particu-
larly thick web of affectively laced content—stories of successful borrowers
with smiling faces—that surrounded and dampened his caveats. In “Sewing
Herself Out of Poverty,” for instance, Kristof (2011) crafts a story with a fas-
cinating narrative arc: it features a Kenyan former sex worker, presented as a
token for all those using microfinance to emerge from poverty, who saves, bor-
rows, and sews—and does well by it. But in the story’s denouement, a health
shock effectively derails all of her painstaking work, threatening to unravel the
woman’s central goals. It is only through Kristof ’s own charitable intervention
that the woman—and the story—is saved. According to him, the takeaway is
that microfinance can work with the right kind of supplementary assistance:
“sheer grit and a helping hand.” Yet when that hand comes from thousands of
miles away, and hence seems so contingent and aleatory, the incongruity is pal-
pable (Prasse-Freeman 2011). Still, the smiles are real and Kristof ’s heroism is
real, and both act to reinstall microfinance as emancipatory despite its manifest
failure.
Microfinance’s general affective content and collective meanings are per-
haps most recognizable when microfinance materializes unexpectedly in other
coverage. Times articles in which microfinance is not the object of discussion but
is still mentioned not only show that microfinance has become so mainstream
as to no longer require defining, but that it stands for, summarizes, and encap-
sulates other social desires. Take, for example, a write-up on an “experience
company” for young global elites in which microfinance is featured:
This year-old self-titled “experience company” (under30experiences.com)

creates (or “curates,” as they put it) international trips for 20 to 30 young
professionals that offer R-and-R and intellectual stimulation: a getaway to
Nicaragua may include surf lessons and, back on land, a lesson in micro-
finance. “This is for people who really want to break out of their comfort
zone and see something new and connect with other ambitious young
people,” said Matt Wilson, a founder. (Marikar 2013)
The Times presents microfinance as iconic of a hip habitus, the intellectual

counterpart to surfing, connected to ambition and youth. US president Obama
conveyed a similar dynamism during a speech in Africa: “From microfinance
projects in Kampala to stock traders in Lagos to cell phone entrepreneurs in
Nairobi, there is an energy here that can’t be denied—Africa rising” (Shear
2013). Microfinance is used as a token of Africa’s “rising” and is invested with
qualities like energy, independence, and success.
These examples show how microfinance has become a signifier evacuated
of its denotational meaning, which has been replaced with indexical content
and pure affect. Hence scandals or inefficacy do not affect how the sign “micro-
finance” is read or felt. Microfinance becomes an end in itself, good regardless
of its effects.
Development: From Antipolitical to Silent
As “microfinance” has become an affect-laden sign circulating in global elite

discourse, the insider interpretations of microfinance outcomes expose the ide-
ology—or, actually, the lack of explicit ideology—suffusing today’s develop-
ment sector. This anti-ideology eschews grand claims about “development” and
instead endorses a small-is-beautiful approach, in which the individual client
becomes the cipher through which the entire world of impoverished people is
perceived: saving her (and it is usually a her, with the associated connotations
of feminized victimization) becomes saving the world. But in this move the part
(the saved woman) consumes the whole (the world), eclipsing the latter from
sight and consideration.
In this, microcredit’s micro-ness finds common cause with the RCT and the
vaguely defined “social business” (see Bateman and Novković, chapter 6, this
volume) as the ascendant modalities organizing and channeling desire in much
of the activity around the underdeveloped world today.11 Both are detached
from such macroeconomic and political issues as poverty eradication, political
liberation, or social justice and have implicitly fallen back on a strain of puta-
tive pragmatism that accepts as they are the political conditions that ultimately
regulate and circumscribe imaginable efforts for improving life outcomes for
the billions of global poor. The common denominator in these solutions is a
new form of antipolitics.
Whereas development ideology was once, as Ferguson (1990) famously
argued, antipolitical in its rendering technical the fundamentally political
challenges of exploitation and exclusion affecting impoverished areas of the
globe, it at least announced a theory of change about the world—and as such
could be contested on the terms of that enunciated theory. In an examination
of development project blueprints and activities in Lesotho, Ferguson showed
that what was functionally a labor reserve for the South African industrial econ-
omy became, through the development machine’s optic, a primitive agrarian
society that could be “developed” through the application of appropriate inputs
provided by international states and governmental institutions. While the
challenges facing communities in Lesotho actually derived from nation-state
boundaries and capitalist extraction patterns, these were not problems that the
development industry could solve and were hence systematically excised from
the machine’s purview.
Whereas Ferguson’s insight stands as a general critique of development,
it can now also be seen as specific to a particular era of interventions, as a
specific modality of antipolitics. To wit, the machine of that time constructed
“development” as a trajectory whose end point was modernization and higher
standards of living for countries that could position themselves on that path.
Although 1950s “Big Push” interventions and 1980s Structural Adjustment Pro-
grams depended on drastically different theories (of the state’s normative role,
of the individual, etc.), they shared a willingness to announce their dependence
on a straightforward utilization of instrumental reason: certain changes (infus-
ing capital or eviscerating the public sector) would lead to certain ends. While
antipolitics accurately characterized the modality of practice effected by the
machine, there was at least an ethos governing it. Although these ideologies
employed the logic of perpetual deferral when their sought-after ends did not
materialize (more money, better technical analysis, and more time would inevi-
tably lead to development, their proponents insisted), such logics ultimately
collapsed when inputs did not lead to promised outputs. By announcing their
desires, they were subject to full-frontal assaults on those terms.
Juxtaposing those previous periods with the current one, we can ask, what
is today’s image of development? What can small-is-beautiful solutions tell us
about that image? In the rubble of the previous regime a new strain of devel-
opment ethos has grown, one that is slipperier because it refuses to even
announce an ideology. A turn to a now-famous Kenyan deworming study may
prove instructive. The study, in which economists found that treating school-
aged children for worms had massive environment-wide spillover effects that
raised school enrollment rates, is often hailed as the foundational moment of
the entire RCT movement (Barrett and Carter 2010), which in turn is one of the
increasingly dominant development solutions today (as evidenced, inter alia,
by the number of awards won by its founder, Esther Duflo). And though claims
to the universal efficacy of deworming have since come under fire (Fiennes
2012), the original study by Edward Miguel and Michael Kremer (2004) gener-
ated not only Kenyan state policy but also an NGO called Deworm the World.
The story of this mobilization led to a Harvard Business School case study (Ash-
raf, Shah, and Gordon 2010), one that is particularly helpful because it provides
insight into how the movement to mainstream deworming developed its goals
and reflected on its tasks.
The case study features a number of challenges—conducting the science,
communicating the science in the right way, organizing the relevant ministries,
and so forth. These are mostly technical, administrative tasks, and it is note-
worthy and perhaps particular to this movement that mobilization around such
technical fixes came to define the horizon of expectation for the “development
question.” Indeed, the deworming movement bases its success on its ability
to get the children it has made healthy to attend school. But boosting school
enrollment seems like only the first step before anything like a development
goal might be claimed. Indeed, what happens when the children attend school
but the teachers do not or they are untrained or they have no materials?
These problems are potentially fixable as well and may ultimately lead to
human capital acquisition (to use economic jargon) that could transform social
environments. But it is also at this stage that structural issues emerge (and politi-
cal conflict becomes more likely); for instance, what happens when those edu-
cated children find no labor market opportunities? It is not the responsibility
of every project to consider these particular questions. But the RCT model
exemplified in the deworming case study implies that poverty is fundamen-
tally eradicable through the proper combination of science and organization.
Worms become a symbol of all the other hidden variables that are preventing
societies from “taking off.” The imagery of worms is worth lingering on: they are
hidden in the ground, they are hidden underwater, they are hidden in the body,
making children sick. In the scientist’s quest to unveil what is hidden, focus in
the underdeveloped world is turned away from structural issues pertaining to
legacies of colonialism or to a global political-economic architecture stacked
against primary-commodity producers.
As development economist Lant Pritchett (2014) points out, those in the
RCT movement have “never [presented] any theory or evidence that a key, or
even important, constraint on development practice was the lack of rigorous
evidence about causal impacts, or that the production of such evidence would
change practices. This was to be taken on faith.” In other words, they have
enunciated no theory of change, only implied a faith in acquired knowledge
aggregating into good outcomes, a faith dependent on a teleological structural
transformation model in which every agrarian economy can and will become
an industrialized, urban one. But as David Waldner (1999, 240) has argued,
such change is not inevitable and may not even be possible. Ferguson (2015)
and Li (2010) have pointed out in Africa and Asia, respectively, that processes
of de-agrarianization have not been attended by corresponding proletarianiza-
tion: “surplus populations,” not workers, are being produced on a massive scale.
In this context, Ferguson (2015, 12) insists upon a fundamental alteration of
our collective perspective on “development” itself, from one focused on eco-
nomic production to one focused on distribution (through cash transfers) to
billions of “people whose labor is no longer wanted.” Can such provocations
about global-scale political-economic trends and their ramifications reach the
microstrategists?
Occupying the Gap: The New Development Figure
Whether the search for ever more data or the reliance on anecdotes, the tactics
employed by microstrategists keep structural-political issues immanent to the
“development” question bracketed by reorienting the affective content of devel-
opment work—the energy, the motivation—toward the micro. In an epoch in
which classic definitions of “development” (eradicating poverty, creating an
economy that provides) are increasingly unspoken or suppressed, these micro-

interventions become less about any ultimate goals and more about themselves.
I would like to tread carefully here. I am not arguing that the practitioners
of these projects always share this antipolitics and anti-ideology or should be
defined by it. Nor am I arguing against the potential of this moment. In a way,
this period’s absence of explicit ideology holds promise: development practi-
tioners, long known for their arrogance, are paying attention to how and why
poor people make particular decisions and manage risk; engineers and entre-
preneurs are concerned with building water systems and cell phone–facilitated
savings schemes rather than designing fancier consumption goods. Better data
can inform more than just policies. This is all to the good. I am more concerned
with how, inside this paradigm of anti-ideology and antipolitics, development
processes are inducted into a discourse that renders them and their proponents
visionary—making them into the deus ex machina that supplants consideration
of the aporias inherent in “development” practice today.
The visionaries are installed in the gap between micro-interactions and the
macro political economy. Just as the microcredit recipient represents world
poverty, the development visionary—the Yunuses, de Sotos, Bonos, Sachses
(and also the protoversions who parade across TED Talk stages)—stands in for
the solution. The visionary collapses the gap between micro and macro using
the affect that inheres in his vision.
And this is perhaps why the failures of microfinance are not perceived as real
sins, why it can be said with a straight face that microfinance was never actually
meant to end poverty (Bateman 2012a) or why microcredit expert David Rood-
man (2012, chap. 7) can argue that the building of a microcredit sector is not
only a good in itself (rather than an instrument of development) but is develop-
ment in itself. In this sense, the microfinance industry may be saying more than
it means to: it may be saying that it never really had a vision of development in
the first place.
Today, the figure of the development practitioner is no longer one struggling
in communities to solve coordination failures, nor one mobilizing at the trans-
national level to contest World Trade Organization policies, nor one crafting
national political platforms for the just distribution of newly generated collec-
tive resources. Rather, the figure is the social entrepreneur giving a TED Talk
(Jurgenson 2012) or a speech after receiving a Skoll award: breathlessly talking
to an eager audience about “win-win solutions” and the “leveraging” of the pri-
vate sector (see Žižek 2006); relaying excitement and limitless promise through
the hands-free, wireless-mic motivational speech.
The affect is tied up in the ideas transmitted, but those visions do not include
a set of consequences that need to be traced through in order for their validity
to be verified. The antipolitics of the visionary teaches us that their projects
are never about the effects as much as the visionary-ness, the way that such
discourse structures a self-contained narrative in which projects are selected
provided they exclude the concrete political challenges that would emerge in real-
izing their ends.
We can return again to the New York Times to see how these visionary fig-
ures are constructed. Kristof often features “social entrepreneurs” who are out
to change the world. But in a drama featuring those two figures—the entre-
preneurial savior and the world to be saved—the former eclipses the latter,
reducing the world to the hero’s manipulable stage props. In a piece entitled
“D.I.Y. Foreign-Aid Revolution,” Kristof (2010) highlights an initiative in
Rwanda started by a young former pharmaceutical representative named Eliza-
beth Scharpf: “Will banana-fiber sanitary pads succeed? No one knows. . . . In
short, it’s complicated. Scharpf is engaged in a noble experiment—but entrepre-
neurs fail sometimes. And anybody wrestling with poverty at home or abroad
learns that good intentions and hard work aren’t enough. Helping people is
hard.” While Kristof is correct to note that good intentions and hard work are
not enough to effectively help people, he neglects to mention that they are quite
sufficient to fulfill his own expectations. If this project in Rwanda does not
succeed, such an outcome will not be couched as failure for this American entre-
preneur. Instead, it will merely be another part of her narrative, of successes
achieved and challenges bested—success even in failure. Indeed, it is already
part of her narrative: Kristof (and the larger discourse he helps comprise) have
allowed Scharpf to succeed already, regardless of her material success or fail-
ure in the Rwanda project. She will be free to use this story as leverage when
she returns to work for her pharmaceutical company or wherever else. While it
appears that Sharpf has not done so—in the time since the article was published
she seems to have remained involved with her Rwandan venture—the point is
that the symbolic work is not at all dependent on her commitment or on the
outcomes of her project.
Conclusion: Why Such Silent Antipolitics?
Early in his famous polemic Encountering Development, Arturo Escobar iden-

tifies a dominant concern that helped generate the idea of development itself:
The United Nations estimated that per capita income in the United States
was $1,453 in 1949, whereas in Indonesia it barely reached $25. This led to
the realization that something had to be done before the levels of insta-
bility in the world as a whole became intolerable. The destinies of the rich
and poor parts of the world were seen to be closely linked. “Genuine world
prosperity is indivisible,” stated a panel of experts in 1948. “It cannot last
in one part of the world if the other parts live under conditions of poverty
and ill health.” (Escobar 1995, 22)
Such an analysis of the world—in which the destinies of rich and poor com-
munities are conjoined—seems quaint today, and this despite the putatively
more deeply connected world wrought by globalization. Such is the irony of
time-space compression techniques that make the world more traversable
(Harvey 1990)—they also establish trajectories of escape and spaces of insu-
lation that create populations more violently divided. The fact that, as Mark
Duffield (2008) shows, Western nations spend more on border control than
they do on development assistance and the fact that the United States chooses to
regulate its empire with a fleet of omnipresent drone bombers (Prasse-Freeman
2015) suggest that the world is increasingly defined by its cleavages. The wall and
the drone together create productive guideposts for understanding this world:
global life is biopolitically managed by way of the conditions in which subjects
are made to live and left to die (Foucault 2003), a terrain punctured by sudden
invasions of sovereign violence (Butler 2004). Where do the small-is-beautiful
solutions like microfinance fit? Do they trouble and threaten to unsettle, or do
they nest themselves too conveniently in this status quo?
Let us return to Ferguson’s recent intervention regarding the global disap-
pearance of a need for labor in which he suggests that massive cash-transfer pro-
grams can reincorporate those unable to perform the classic “productive” role.
He insists that transfers—already reaching nearly a billion recipients—could
spur a new politics based on distribution of “a rightful share” to people across
the world (Ferguson 2015). In doing so, however, he also invites the critique that
transfers of meager amounts merely manage misery and exclusion. While adju-
dicating the two sides would partially depend on empirical details (how much
cash is being transferred?), one also wonders if some nascent political potential
of cash transfers is foreclosed by the hegemony of microfinance and the other
silent micromodels. In their monopoly on affect, in their silent insistence that
everything will be fine with more “grit” and more “helping hands,” the radical
idea of a rightful share can be displaced. Microfinance represents the thin and
brittle path that the global poor must walk for access to development’s promises,
and in that regard it constitutes a failure of the imagination for a different kind
of politics that might hope for—and even demand—more.
Notes
1. In a response to Sinclair, the Kiva.org founders themselves concede the point

about inefficiency (Flannery and Shah 2014).
2. For a thorough critique of the scientific claims of RCTs, see Pritchett and Sande-
fur 2013.
3. For a definition of terms and exploration of doxa (common sense), see Bourdieu
1977.
4. The European Union, for instance, launched its €200 million “Progress Micro‑
finance” initiative in 2010: http://ec.europa.eu/social/main.jsp?langId=en&
catId=836.
5. Bateman (2012a) and Sinclair (2012a) make strong arguments for bad faith on
the part of many embedded in the industry. See also Mader 2010.
6. It warrants mentioning that the phrase “poverty alleviation” often acts as a

floating or indeterminate signifier in microcredit discourse, as well as in devel-
opment circles more generally, seeming to mean the elimination of poverty
in some cases while suggesting merely the alleviation of the most debilitating
effects of poverty in others.
7. See also microfinance practitioner Dunford (2013): “Focusing on increase of

consumption and reduction of poverty, researchers have treated consumption-
smoothing as a secondary interest. Yet evidence of smoothing now seems
the most logical justification of public and private social investment in
microfinance.”
8. They are facilitating economic transactions, managing day-to-day resources,

accessing services that improve quality of life, protecting against vulnerability,
and building economic citizenship.
9. Waldman (2003) declares, “Harder to gauge is how much actual economic

progress there has been thanks to BRAC’s efforts at microfinance,” and features
the following ambiguous evidence: “Imran Matin, a BRAC economist, said he
believed that 10 to 15 percent of borrowers had ‘done really well’ with micro-
finance, 10 to 15 percent had done poorly, or even been harmed by the debt
burden, and the rest had used the money for consumption or as an economic
cushion.”
10. See http://nyti.ms/1kGZhfJ and http://nyti.ms/1htzrt7.
11. Most invocations of “social entrepreneurship” do not engage critical ques-

tions—such as what is the “social”; what amount of social benefit justifies
what amount of profit; and who adjudicates these tradeoffs?—that would
make defining it possible.
Chapter Five
Kiva’s Staging of “Peer-to-Peer”

Charitable Lending
Innovative Marketing or Egregious Deception?
Domen Bajde
Kiva just hit the 1 MILLION lender mark! You are now officially one
in a million inspiring changemakers, pioneers, and poverty fighters!
—E-mail message from Kiva
Introduction
Since its inception, Kiva has mobilized more than a million lenders with its
imaginative and picturesque stories of poverty, entrepreneurship, and hope. It
has brought the gospel of microfinance to the masses by advancing a flattering
discourse of benevolent lending and, more fundamentally, by staging compel-
ling user experiences. This staging has received mixed responses ranging from
ecstatic praise to piercing critique, thus inviting closer examination of the sup-
positions and stakes at play in Kiva’s marketing. Drawing upon analyses of the
organization’s marketing and the public response to it, I will examine the ways
in which transactions taking place on Kiva.org are staged as transparent, effica-
cious peer-to-peer charitable lending.
Their commercial successes notwithstanding, many microcredit operations
continue to rely on philanthropic contributions. They have sought funding, in
part, by addressing the general public through microlending platforms such as
Kiva.org. As it is not unusual for these platforms to function as sites of people’s
first or primary contact with microfinance, it becomes important to ask several
questions: What kind of discourses and representations of microlending are at
play on such platforms? How does the public engage with the constructions of
microfinance and philanthropy promoted by these platforms? What drives the
appeal of platforms like Kiva, and what are the implications? These dilemmas
87
88 Domen Bajde
spur my analysis of Kiva as a site where philanthropic lending is framed as a

supposedly superior form of charity and as an enticing experience of prosocial
investing.
I draw on qualitative data comprised of archival documents (i.e., texts and
videos released by Kiva, media reports, and blog commentary), user-generated
texts collected in an online community of Kiva supporters, and notes detail-
ing my two-year participatory observation of the platform. The user-generated
texts that I collected from Kivafriends.org, a forum comprising more than
97,000 posts shared by close to 7,000 members,1 include 1,146 messages posted
by members discussing the appeals and drawbacks of microlending on Kiva.
The participatory observation data cover my contact and experiences with the
platform in the period between February 2011 and September 2013. During that
time, I familiarized myself with the platform, personally funding six loans to
entrepreneurs in Peru, Sierra Leone, and Ghana, taking part in Kiva’s team-
lending program, and testing out various marketing activities conducted by
Kiva (free trial invitations, gift-certificate campaigns, etc.).
Drawing on a combination of theoretical perspectives, most notably Lilie
Chouliaraki’s (2012) notion of humanitarian theatricality, I argue that Kiva is
best approached as an ideologically potent site where particular kinds of inter-
actions are staged. Rather than uncritically accepting an idealized view of Kiva
as a straightforward platform for peer-to-peer lending, I engage with Kiva’s
ambivalent theatricality. I begin by presenting my theoretical framework and
then outline both the genealogy of Kiva and the discourse surrounding it. I
devote special attention to the ways in which Kiva stages interactions to support
a highly consumable experience of benevolent lending.
The Humanitarian Theater
While all interaction is staged in the broader sense of being shaped by particu-
lar actors and actions, theatricality in the narrower sense denotes spectacle.
For example, the infamous child-sponsoring campaigns that I will mention
have been critiqued as theater in the narrow sense by those pointing out how
the suffering of third world children is spectacularized to evoke an emotive
response and the financial support of Western audiences. Given the substantial
detachment (geographic, cultural, economic, etc.) between the benefactors and
beneficiaries (as well as the obstacles and temptations involved in crossing these
Kiva’s Staging of “Peer-to-Peer” Charitable Lending 89
distances), this kind of philanthropy is exceedingly theatrical and its “on-stage”

and “off-stage” realities can become less than compatible.
Reflecting upon this paradox, Chouliaraki (2012) outlines two central prob-
lems of “humanitarian theatricality.” First, the staging of poverty weakens the
truth of distant suffering, thus desensitizing the (Western) audience and pro-
voking suspicion and apathy. Second, the purpose of philanthropic staging is to
bring the distant poor “closer” and reinforce a sense of shared humanity, but, in
fact, it tends to reproduce rather than erode existing global divides and power
imbalances, thus restricting the potential for genuine agency and social change.2
Going back to the child-sponsoring example, one might argue that while the
campaigns cleverly mobilized donations, donors’ feelings of empathy and guilt
were put to rest without the fundamental causes of poverty and inequality being
addressed.
These tensions and failings stimulate the invention of new genres of philan-
thropy, along with novel forms of theatricality and legitimization (Chouliaraki
2012). These newcomer genres respond to the growing disillusionment with
conventional charity (e.g., the ethos of unreserved, altruistic giving)3 by enter-
taining their audiences in novel ways and, more importantly, by reeducating
and imaginatively reengaging them. In the wake of the growing compassion
fatigue spurred by the explosion of humanitarian imagery (i.e., endless solici-
tations for help) and the disappointing results of aid projects past, Chouliaraki
(2012) suggests that we are witnessing a historic shift from solidarity of pity
to solidarity of ironic spectatorship, wherein philanthropy becomes increasingly
geared toward donor self-expression and emotional experience.4 As solidarity
becomes progressively more embedded in consumer culture (i.e., shaped by the
needs of consumer-donors), collective activism and selfless giving are crowded
out by a highly individuated lifestyle humanitarianism that “turns the com-
munication of solidarity into artful story-telling, . . . situates acts of solidarity
within the private realm and aims at empowering consumers, rather than culti-
vating dispositions of other-oriented care” (Chouliaraki 2012, 180).
Chouliaraki’s work helps us approach Kiva as a paragon of a particular
humanitarian genre—peer-to-peer microlending5—and focuses attention on
the ways in which this genre entices its audience to reimagine society and social
action. Put differently, new genres usher in new “humanitarian imaginaries”
(Taylor 2002). As I have demonstrated (Bajde 2013), microlending on Kiva is
saturated with the ideology of entrepreneurial philanthropy, which reinterprets
90 Domen Bajde
Table 5.1. Kiva’s Ideology of Entrepreneurial Philanthropy
Ideological Beliefs Regarding Ideological Beliefs Regarding

Ideological Conception Microlending Conventional Charity
Poverty Optimistic focus on Pessimistic focus on pain

untapped entrepreneurial and desperation
potential
Beneficiaries Empowered poor Helpless, dependent poor
Benefactors “Philanthropic investors,” Naïve, detached, powerless

engaged agents of change donors
Beneficiary-benefactor Egalitarian, binding partner‑ Unsustainable patronage;

relationship ship; dignified “hand up” degrading “handout”
poverty, social progress, and philanthropic giving. Table 5.1 shows how this ide-
ology casts conventional charity in a very negative light (see right column) and
invites us to supplant it with the allegedly superior alternative of microlending
(see middle column).
Both Chouliaraki (2012) and I (2013) point to the importance of investigat-
ing not only the manner in which poverty and the poor are represented within
a particular philanthropic genre, but also the overall staging of interactions.
Whereas Chouliaraki is primarily concerned that catering to Western donors
goes hand in hand with the displacement of distant others and their suffering,
as distressing images of poverty are supplanted by images of celebrity ambassa-
dors, charity rock concerts, and so forth, microlending platforms such as Kiva
hardly shy away from putting the poor front and center. Suffering and vulnera-
bility do get displaced by the platform’s focus on the entrepreneurial powers of
the poor (see table 5.1), but at the same time, images and stories of the poor are
placed to a degree rarely seen before. What requires further investigation is the
precise nature of this placing.
The Genealogy of Kiva and the Discourse Surrounding It
Kiva’s stated mission is to alleviate poverty via microloans to impoverished

entrepreneurs who are profiled on Kiva.org.6 Created by Matt Flannery and
Jessica Jackley in 2005, Kiva was born of the marriage between microfinance
and Silicon Valley social entrepreneurship. Flannery and Jackley aspired to
build an online platform that would allow Internet users to “sponsor a business”
by lending small amounts of money (starting from twenty-five dollars) directly
to impoverished entrepreneurs. In “Kiva and the Birth of Person-to-Person
Microfinance,” Matt Flannery (2007, 23) emphasizes his aspiration to facilitate
“a dignified, intellectual, and equitable” alternative to charity—an engagement
that is direct (i.e., person to person), transparent, and egalitarian (i.e., a peerlike
partnership between lenders and borrowers).
As one of the forerunners of online social entrepreneurship and a self-
proclaimed pioneer of peer-to-peer (P2P) lending, Kiva has received con-
siderable media attention. The innovative Kiva model has been praised by
philanthropy and Web 2.0 pundits (e.g., Watson 2009; Bishop and Green
2008), journalists, and celebrities like Bill Clinton and Oprah Winfrey. For
instance, columnist Nicholas Kristof (2007) praises Kiva for connecting “the
donor directly to the beneficiary, without going through a bureaucratic and
expensive layer of aid groups in between” (see also Prasse-Freeman, chapter 4,
this volume). Connectivity, directness, efficiency, and transparency are com-
mon elements of the popular discourse surrounding Kiva, which is praised
for leveraging technology and entrepreneurial know-how and making high-
impact peer-to-peer charity a reality. Such idealized praise has also portrayed
Kiva as a place of win-win partnerships, where lenders maximize their impact
through personal(ized) and close to costless loans and where poor borrowers
are empowered to lift themselves out of poverty through dignified means.
Amid growing suspicion of Kiva’s model, David Roodman (2009a) exposed
the frailty of Kiva’s claims to be the world’s first P2P lending organization.7
Noting that “Kiva is not quite what it seems,” Roodman points out that Kiva
is not actually a P2P platform at all, and he draws scathing parallels between
Kiva’s P2P illusion and the notorious and deceptive child-sponsoring cam-
paigns extensively publicized in the 1990s.8
Surprisingly, the exposé did not cause serious trouble for Kiva: no key indi-
viduals were dismissed or fined, and the organization kept on growing. Kiva
initially reacted to Roodman’s revelations by doing little more than replacing
its original slogan (“Kiva lets you lend to a specific entrepreneur, empowering
them to lift themselves out of poverty”) with a more ambiguous one (“Kiva
connects people through lending to alleviate poverty”; Strom 2009) and mod-
erately revising its online documentation to acknowledge that the platform con-
nects individual lenders to microfinance institutions (MFIs) and not individual
donors, as had been widely assumed (Ogden 2009).9
92 Domen Bajde
Consequently, Kiva users can now more readily discover that their loans are
neither direct nor interest-free for borrowers, another misconception that arose
to the alleged surprise of Kiva. Instead, Kiva loans are mediated by MFIs that
tend to finance borrowers before profiling them on Kiva.org. Moreover, as Hugh
Sinclair (2012a) points out, MFIs are allowed to charge borrowers their normal
interest rates in spite of receiving zero-interest cash from Kiva’s supporters. For
a long time, Kiva refused to publish details of the interest rates attached to the
loans generated by Kiva funds. Under pressure, however, Kiva has started using
portfolio yield as the measure by which we should judge its MFI partners, even
though this figure routinely underestimates, sometimes very significantly, the
actual interest rates offered by Kiva’s MFI partners (see Sinclair 2012b). More-
over, as has been shown by other online-lending organizations such as Den-
mark’s MYC4 or US-based Zidisha, it is not too difficult to report the actual
interest rates for individual loans—that is, if you want to.
Given the extent of the misconception created by Kiva, it is surprising that
critiques of Kiva have been rather hesitant and Kiva’s subsequent reforms
incremental. Despite expressing unease with Kiva’s “story-constructing ethos,”
Roodman (2009b) feels that he has to temper his criticism and remains a major
supporter of microfinance in spite of his recent conclusion that it has had “zero
impact on poverty” (see also Bateman and Maclean, introduction, this volume).
Strangely, Kiva’s problematic “peer-to-peer illusion” has not been blamed on
Kiva itself but on the donors and lenders who allegedly crave stories and direct
contact with the poor. It is as though Kiva (and other similar organizations)
has been powerless to stop misrepresenting what it is doing. Less surprisingly,
Kiva’s response to the concerns expressed by Roodman and others has been to
frame the problem as a “gap in communication” (between the platform and its
users) and insist that “the pictures and stories on the Kiva site increase under-
standing between various parties that would otherwise operate in completely
different universes” (Flannery 2009). Criticism and reform notwithstanding,
Kiva continues to describe person-to-person lending as creating a smooth flow
of money from a particular lender (via Kiva and MFIs) to a particular borrower
and back.10
What is more, the discourse built up around and by Kiva naturalizes sev-
eral seriously problematic assumptions regarding the impact of Kiva loans.
Kiva persistently invites lenders to “change lives,” “create opportunity,” and
“empower people around the world” by lending as few as twenty-five US dollars.
The lenders are invited to see “the impact that they [are] having on people
across the world.” Although seldom stated explicitly, having one’s loan repaid
implies successful poverty alleviation. Kiva’s promotional video, “The Story of
Pedro,” readily alludes to the loan-impact-repayment sequence; that is, lending
improves the borrower’s livelihood, which ultimately enables them to repay the
loan.
In sum, the discourse surrounding Kiva mythologizes microlending in
terms of both its impact and its nature. Challenges to “peer-to-peer poverty
alleviation” have been pushed aside as early development glitches or accidental
“communication gaps.” The international development community and Kiva
supporters have gone along with these explanations. They have accepted an ele-
ment of illusion as an inevitable outcome, necessary to garner broad support.
Critiques that more seriously challenge Kiva have been successfully marginal-
ized (e.g., Sinclair’s [2012a, 2012b] scathing critique has generated limited dis-
cussion in the microfinance industry).11 Finally, one must also point to the sheer
popularity of microfinance within the policy-making establishment, which
is such that even serious ethical transgressions tend to be downplayed if not
simply forgiven. Has the concept of microcredit has become so important that
it must be defended by any means, including deception (see Bateman, chapter 1,
this volume)?
The Staging of the Peer-to-Peer Microlending Experience
To examine Kiva’s staging of transactions from the lender’s perspective, I turn

to the data I have collected in the Kivafriends.org community. My aim is not to
provide a general account; rather, I examine naturally occurring conversations
about Kiva and try to uncover patterns that show how highly involved lenders
construe and experience microlending. While this methodology limits my
ability to generalize, it allows me to conduct a contextualized investigation, to
describe the negotiation of meanings attached to Kiva and to lending by a par-
ticular community of lenders, and to ensure that their meanings have not been
distorted by the researcher’s presence.
After foraging through hundreds of, at times exceedingly personal, accounts
of what makes Kiva meaningful to individual lenders, I was struck by its alluring
fusion of pragmatism, sentimentality, and hedonism. I use these three themes
to structure the following data.
94 Domen Bajde
The Pragmatic Loan
The members of Kivafriends.org offer a number of pragmatic reasons for their

support of Kiva and commonly use the phrase “helping people help themselves”
to emphasize the superiority of lending over unconditional giving. As argued
by one of the members, conventional charity breeds passivity on the part of
the recipient, while lending encourages activity: “Although necessary, it’s not
very effective. The main reason for this is, that for the local people, there are no
stakes. If it works, you get money. If it doesn’t—well you don’t, but there is no
loss or pressure either. Micro-financing may help here. It’s a loan—you gotta
pay it back!” What is more, the money, when repaid, can be used again and
again, allowing for potentially endless interventions. In this way microlending
becomes construed as a judicious use of scarce resources. Thanks to the high
repayment rates (approximately 99 percent of loans on Kiva are fully repaid),
lenders can leverage their money without permanently losing it. As succinctly
explained by one of the lenders, “I like the idea of other people using my money
before I do.”
Lenders readily assume that the money loaned via Kiva positively impacts
the lives of borrowers. Consider the following vote of confidence expressed by
two like-minded members:
While I am a frequent and chronic donor to various charities (from rain-

forest relief to panhandlers) the microlending approach is the first real way
I’ve seen to leverage my limited resources and be able to use them to help
people over and over again. And with repayment, I can get direct feedback
on whether the process is working or whether my funds are just being
swallowed up.
Loan repayments are one of the major highlights of the entire process
because you can take that same amount and help a fresh face, really as
many times as youd [sic] like . . . with helping the poor through Kiva every-
thing goes much, much further, and it’s hard to deny how unique that is
when you compare it to typical charity.
These quotations express a common appreciation of Kiva lending as a genu-

ine way of helping—a close to costless intervention that comes with definitive
feedback. As opposed to charitable gifts that disappear into the ether, a loan
goes to a specific addressee and comes back to the sender. Moreover, lenders
make comparisons to traditional charity to indicate the lack of a middleman.
To paraphrase an observation shared by another member, money flows directly
to a specific borrower and back, so greedy middlemen have less of a chance to
dip their fingers into the pot.
The Sentimental Loan
I work at a nonprofit policy organization right now doing research,

& while what I do is useful, sometimes it feels v. distant. So things like
Kiva are great b/c I feel that I am having an immediate impact. . . .
I am really excited that Kiva lets ordinary folks get so involved.
—Kivafriends.org member
In addition to producing experiences of unmediated exchange, peer-to-peer

interaction inspires strong emotional responses. Kiva helps close distances and
assure immediate impact, personal involvement, and connection:
My mom introduced my sister and me to Kiva this weekend after reading

about it in the local paper. Together we decided to make a loan to a young
man in Azerbaijan to help him purchase four calves. He is the same age as I
am, and making this loan brought up memories of growing up on the farm,
taking part in 4-H and attending livestock auctions with my grandfather.
These personal connections are what make Kiva so powerful.
“Touching” distant people and recognizing oneself in their stories and pictures
make Kiva lending personal and meaningful. The element of lender choice
(among the many borrowers profiled on Kiva.org) becomes particularly impor-
tant here not only in pragmatic terms (i.e., controlling impact and ensuring
repayment), but more importantly in sentimental terms. Consider the advice
to lenders offered by one of the members:
Wait to choose people who, for some reason, really “hook” you—either
because of their stories, or their pictures, or because of the kind of work
they’re trying to do, or, maybe, merely because of their geographical loca-
tion. Even if you don’t find anything that really grabs at you the first few
days you go there, be patient, eventually you’ll find ones you’ll really like.
96 Domen Bajde
And then you’ll feel the fun in being able to share them with your family
and friends and can say: “Oooh, look at my people! They’re so neat!”
There are many connections to be had on Kiva, and the nature of lending
ensures that contact is extended as loan updates and repayments continue to
flow long after the initial transaction has taken place. These connections become
part and parcel of other more intimate connections as loans are shared with
family, friends, or fellow lenders. Furthermore, as is evident in the last quota-
tion, the line between benevolence and fun becomes increasingly opaque, as the
sentiments aroused contribute to the manifold pleasures of lending.
The Hedonic Loan
Kivafriends.org members make it perfectly clear that Kiva.org is fun. A humor-

ous pledge card created by a member invites fellow “Kiva addicts” to admit that
they crave new loans, along with the pleasure and excitement they experience in
searching for them. While some “play elements” have been purposefully inbuilt
by Kiva (e.g., encouraging lenders to form and join competing lending teams),
other hedonic elements seem less anticipated: “I am a Kivaholic. . . . At the
moment I’m still ‘collecting’ countries and borrowers with cheerful smiles—
how shallow is that, but in the presence of other addicts maybe I shouldn’t feel
too embarrassed to confess a frisson of excitement at being able to bag a new
one.”
This lender is joined by many others who get a kick from collecting par-
ticular loans. In addition to building up personal collections of loans, lenders
snatch rare, desirable loans to garner the attention and appreciation of fellow
lenders. Similar joys can be obtained from “completing” loans—putting up
the money or soliciting investments from fellow lenders to reach the thrilling
“100% funded” mark, especially to prevent a struggling loan from “expiring”
(i.e., failing to reach full funding in the allotted time frame). Lenders also report
on other pleasures less directly related to lending, such as learning about distant
cultures, learning about finance, interacting with fellow lenders, and enjoying
the poignant aesthetics of the pictures and stories presented on Kiva.org. The
importance of the latter is illustrated by a Kivafriends.org forum thread entitled
“Best smiles,” wherein members have shared more than six hundred pictures of
smiling borrowers (published on Kiva) and passionately reflected on the joys
these pictures bring to them.
However, the hedonic elements of lending can lead to tensions when the
pleasures obtained are seen to crowd out the underlying mission. For instance,
team-lending competitions meant to mobilize lenders encountered consider-
able resistance in the Kivafriends.org community. According to one member,
The lending teams didn’t cause Kiva to lose their way, they were a sign of
the way becoming lost. I was one of the people Kiva contacted . . . for input
prior to their rolling out the team platform. The biggest piece of it for them
was the opportunity for competition; teams of lenders battling one another
to see which could make the most loans. They were dreaming about what
kinds of contests they could run. . . . I remember being shocked, because
I thought the whole thing was about cooperation and working together.
That was my realization that the folks at Kiva don’t look at it the same way
I do. It was like I was talking to Mars Candy trying to figure out how to get
people to buy more M&Ms. Kiva came off as just another business.
Another added, “In short, some started to have a second agenda for lending
which in my view diminished the original commonly shared cause and ideal-
ism. . . . Now we are fractioned and by Kiva turned into consumers on a market-
place.” With its growing success and intensified marketing, many otherwise
passionate supporters feel that Kiva is drifting away from its mission.
The Ambivalent Loan
I think I’m a good case study of a disillusioned Kiva Lender. Just a year
or so ago I was deep in Kiva-mania. . . . However I have made an almost
180-degree turn. When I found out that loans are disbursed before the loan
is fully funded here on the Kiva site I lost the feeling that I was lending to
the individual and now feel like I’m topping up the coffers of the MFI.
—Kivafriends.org member
Following in the footsteps of this lender, several Kivafriends.org members

report being “disillusioned.” The reasons that have led them to feel that Kiva
does not measure up to its initial promises and expectations are varied and fall
beyond the scope of this chapter. What is more pertinent to our discussion is the
tendency of Kivafriends.org members to describe the fundamental mission of
Kiva as (1) alleviating poverty and (2) facilitating connections between lenders
98 Domen Bajde
and borrowers. From late 2009 onward (see my discussion of Roodman’s com-
mentary), members have critiqued the transparency of Kiva largely through the
prism of this dual mission.
As is evident in the epigraph, Kivafriends.org members focus mainly on the
problematic shift in the lending sequence (i.e., the lender funding comes after
the disbursal of funds to borrowers). Several users compare this sequence to
that of paying with a credit card or taking out a mortgage, arguing that a lender
not being able to give money directly to a designated borrower is tantamount
to purchasing credit. Consequently, the transaction becomes independent of
timing.
However, other members disagree: “I don’t understand this characterization
of Kiva’s person to person lending model as an illusion. When my particular
loan posts a repayment, I get the money. If my particular loan defaults I get that
too. Making the claim that a timing issue means there is no person to person
connection seems to me to be a total misrepresentation of reality.” This quota-
tion illustrates how a belief in the overall structure of cause and effect can fend
off doubts or negative critique. Indeed, Kivafriends.org members who more
seriously question the nature of transactions on Kiva are few and far between.
When such questioning does take place, doubters and critics are asked to pro-
duce definitive proof that would fault the accepted wisdom (e.g., unrelenting
supporters of Kiva request the contracts made between Kiva and MFIs). In
most cases, of course, such proof is not available,12 so lenders tend to resort to
faith: “So why do I keep lending? What do I get out of it? Nothing if I’m not pro-
viding a benefit to the borrower. What’s the only benefit I can provide? Cheap
capital to the MFI that will translate into a lower interest rate on the borrower’s
loan. If I’m doing that then I’ll continue.”
To summarize, microlending on Kiva is woven together from pragmatism,
sentiment, and pleasure so that lenders can be(come), concurrently, smart
investors, benevolent humanitarians, and playful hedonists. Largely echoing
the communicative structures deployed by Kiva itself, Kivafriends.org mem-
bers experience their activity on Kiva as peer-to-peer lending—a pragmatic,
morally superior, and pleasurable form of charity. In the wake of the growing
criticism of Kiva, some members have wrestled more explicitly with the ambi-
guities of microlending. While such wrestling leads them to seriously rethink
the Kiva model, Kiva’s opaque practices also allow entrenched ways of imagin-
ing microlending to persist.
Conclusion
Kiva’s staging of benevolent microlending is both innovative and problem-

atic. It is innovative in its response to the growing compassion fatigue of
Western donors and their craving for both meaningful and convenient philan-
thropic engagement. Unlike Chouliaraki’s (2012) post-humanitarianist genres
of charity, this response does not push needy others off the stage, but rather
re-stages them as the working poor waiting to be unleashed by microcredit
(Bajde 2013). However, it is not only a re-presentation of the poor that is at
stake. What is staged on platforms such as Kiva is a particular mode of philan-
thropic action, namely, peer-to-peer microlending. The latter is enacted as an
exchange between lender and borrower that is concurrently pragmatic, inti-
mate, and fun—an exchange that is legitimized as a socially, economically, and
morally superior form of charity, that is, more efficacious, more egalitarian and
dignified, more transparent.
Reflecting upon the debate ensuing from his critique of Kiva, Roodman
(2009b) writes, “The important question here is not whether Kiva is adequately
transparent. It is whether and when microcredit helps people.” Their relative
importance aside, these two questions are closely linked. The discourse sur-
rounding Kiva naturalizes several assumptions regarding the impact of micro-
lending in general and Kiva loans in particular. As I have shown in my analysis
of Kiva’s promotional material and the data collected on Kivafriends.org, micro-
credit is believed to alleviate poverty, lending on Kiva is taken to improve access
to microcredit, access to microcredit is everywhere assumed to be restricted,
loan repayments are thought to have a positive impact on borrowers’ lives, and
high repayment rates come to signify successful poverty alleviation.
Unfortunately, even if one does accept that microcredit alleviates poverty,
we have no assurance that the interest-free funding afforded by Kiva lenders
actually leads to more and better opportunities for borrowers to obtain micro-
credit. While Kiva and its supporters tend to assume that the interest-free loans
extended via the platform lead to lower interest rates for borrowers, this is
hardly ever the case (Sinclair 2012a). Kiva does not report the fees and interest
rates paid by borrowers profiled on Kiva.org, nor does it indicate that its MFI
partners must pass on the benefits of “free” capital to the borrowers. In fact, only
in a tiny number of cases (such as Mongolia’s XacBank, which introduced and
publicized special “Kiva loans” offered at a very reduced interest rates) has it
100 Domen Bajde
been shown that the low-cost capital afforded by Kiva to MFI partners trickles
down to the borrowers (perhaps even to the specific borrower chosen by the
lender); rather, the data show overwhelmingly that the benefits actually “trickle
up” to MFI management and shareholders (Sinclair 2012a, 2012b). We see simi-
lar problems in relation to return flows of money, where MFIs again have no
evident contractual obligation, much less motivation, to accurately report loan
defaults and delinquencies to lenders and plenty of incentive to programmati-
cally misreport in order to keep the free money flowing in (see Sinclair 2012a).
There also seems to be little recourse for lenders in cases where a designated
borrower does repay the loan but the MFI fails to pass the repayments on.
Put differently, the staging of peer-to-peer microlending is problematic not
only because of its essential dishonesty; just as importantly, it is problematic
because it glosses over the highly fundable and ambiguous nature of trans-
actions surrounding Kiva and leaves plenty of room for abuse and exploitation.
While some lenders do realize this, Kiva (still) does (too) little to address the
vulnerability of the (often less than suspecting) lenders and borrowers, which
is all the more problematic given Kiva’s strong rhetoric of egalitarianism and
empowerment.
No small part of Kiva’s allure resides in the sense of control and (humani-
tarian) connectedness experienced by lenders who are free to choose whom
to lend to. This sense of control and connectedness also feeds a sense of part-
nership between lenders and borrowers, predicated upon improved “under-
standing between various parties that would otherwise operate in completely
different universes.” However, a more critical look at this humanitarian genre
poses several dilemmas that need to be addressed by Kiva and its supporters.
Jackley and Flannery’s vision of a marketplace for philanthropic capital
seems to have resulted in the creation of a marketplace for images and stories
of the poor, a consumption playground where the poor are objectified and con-
sumed, rather than empowered. This objectification is exemplified by the less
than dignified appropriation of borrowers as collectable items, resources for
personal amusement and play. Such appropriation feeds donors’ needs for self-
expression, voyeurism, and play in the name of poverty alleviation. Faced with
the data, I think it is hard to see Kiva as a meeting place of lenders and borrow-
ers rather than as a (market)place—a place where lenders consume simulated
experiences of change making and connection to the poor.
Notes
1. By October 2013, Kivafriends.org had attracted more than thirty-six million

views (an average of more than fifteen thousand per day in its six years of
operation).
2. Empowerment and agency thus go hand in hand with passivity, with the poor
stationed in front of a camera and the rich glued to their (warm) seats.
3. This ethos is increasingly charged with naïveté and impotence (i.e., naïve
do-gooderism).
4. Similar tendencies are observed in the growing body of literature critiquing the
marketization of philanthropy (Eikenberry 2009).
5. This is not to suggest that Kiva-type lending can or should be reduced to

humanitarian giving but that (1) Kiva clearly frames lending as a philanthropic
endeavor (see Bajde 2013), and (2) outside of such humantarian framing the
appeal of interest-free (micro)lending to distant others is seriously limited.
6. The groundwork necessary to publicize and facilitate the loans (e.g., attract and
filter potential borrowers, transfer funds to borrowers, collect repayments) is
conducted by local MFIs. In contrast to the lenders, who expect to forgo any
interest earnings, the MFIs charge borrowers interest to cover their expenses
and earn a profit (when operating on a for-profit basis).
7. Prior to Roodman’s revelations, a good number of business school academics

used Kiva as a teaching platform, encouraging students to assess each potential
borrower on the basis of the data provided by Kiva and in terms of the feasi-
bility of the basic business idea, its likely development impact, the local market
potential, etc. The class would often follow through with a class loan on Kiva
in support of the business ideas collectively selected as “the best,” and then in
the coming months the class would carefully monitor the resulting repayment
schedule. However, when Kiva routinely reported that every single loan pro-
vided was successfully repaid (for the reasons detailed in this chapter) in spite
of microenterprise failure rates typically being extremely high in most develop-
ing countries, some business school staff eventually began to suspect that the
entire process was staged. For obvious reasons, however, almost none of these
academics would go on record with their views of Kiva after having been fooled
in this manner.
8. See the 1998 Chicago Tribune report entitled “The Miracle Merchants” (Zielinski
et al. 1998) for a prominent example.
9. In 2011, however, Kiva launched Kiva Zip, a genuine P2P lending program that
uses mobile payment technologies in order to offer interest-free microloans to
102 Domen Bajde
clients in developing countries. Kiva never mentioned in any of their publicity

the fact that Kiva Zip was a genuine P2P lending operation, since this would
obviously highlight once again the falsity of their original selling point of being
the “world’s first P2P lender.” In 2016 difficulties in maintaining a genuine
P2P format, including high loan default rates, forced Kiva to close Kiva Zip in
developing countries, thus ending its short-lived engagement with genuine P2P
lending in the Global South (Kiva 2016).
10. The “How Kiva Works” subpage highlights the story of Pedro, whom users are
invited to lend to. The introductory video describes Kiva as a platform “where
people like you can lend money to people like Pedro” and where “Pedro can
repay the money to you in no time.”
11. Reading through the blogger debates on Kiva’s arguably deceptive model, one
finds apparent consensus regarding the supposedly inevitable tension between
donors’ desire for personalized interaction (getting to know the recipient, giving
directly to chosen recipients, getting feedback, etc.) and the reality of aid opera-
tions (transaction costs, coordination, and logistics). Compromising the former
reduces the support received; compromising the latter reduces efficiency and
legitimacy. An element of illusion is thus seen as inevitable in garnering broad
support (Dichter 2009).
12. Ironically, there are stark limits to transparency in these “hypertransparent”

systems.
Chapter Six
Muhammad Yunus’s Model of Social Business

A New, More Humane Form of Capitalism
or a Failed “Next Big Idea”?
Milford Bateman and Sonja Novković
Introduction
One of the most dramatic developments in the field of entrepreneurship and

international development policy in recent years has been the rise of the “social
enterprise” (Nicholls 2006; Seelos and Mair 2005). A social enterprise is said
to combine traditional entrepreneurship and private sector–style operational
efficiency while explicitly addressing basic human needs that markets, conven-
tional for-profit businesses, and state policies are unable to fulfill (Dees 2001;
Certo and Miller 2008). Today, although it is understood differently in different
parts of the world, the social enterprise concept is widely seen as an immensely
powerful force for economic transformation and social value generation (Bor-
zaga and Defourny 2001).
Possibly no one is more convinced of the power of the social enterprise
model than the 2006 Nobel Peace Prize laureate and leading light behind the
modern microfinance model, Muhammad Yunus. But rather than sign on to the
existing model, Yunus (2007, 2010a) came up with his very own form of social
enterprise, which he terms a “social business.” Yunus (2010b) defines his social
business model to be “a non-loss, non-dividend company dedicated entirely to
achieve a social goal. All profits, or ‘surplus revenue,’ [are] ploughed back into
the venture for expansion and improvement. In social business, the investor
gets his or her investment money back over time, but never receives dividend
beyond that amount.”
The fundamental difference between Yunus’s social business model and
the wider social enterprise model is that a social business is always a for-profit
business. Nonetheless, the social business is said to be equally able to auto-
matically pursue and achieve important social goals.1 Indeed, never one for
103
104 Milford Bateman and Sonja Novković
understatement, Yunus has very widely proclaimed that his social business
model represents a radically new and more humane form of capitalism. Given,
however, the very serious problems associated with Yunus’s first big idea—
microfinance—it is logical, if not absolutely imperative, to ask if what Yunus
has quite openly called his “next big idea” has any real substance or merit. That
is, before Yunus’s next big idea begins to absorb scarce funding, policy makers’
attention, and even more individual and collective effort than at present, and
before other potentially more socially efficient enterprise models (such as
cooperative enterprises) are further undermined and marginalized as a result,
we need to understand the rationale and likely long-term impact of the social
business model.
Importantly, Yunus has described Grameen Bank and its affiliates as “ideal”
examples of the social business concept. The aim of this chapter, then, is to use
the lens of microfinance to very briefly interrogate some of the far-reaching
claims Yunus has made on behalf of the social business model. Grameen Bank
provides three examples of some of the most highly regarded social busi-
nesses in which microfinance has been central: Grameen Bank itself, Grameen
Danone, and Grameen Telecom. An analysis of these supposedly best practice
examples should shed some light on the efficacy and relevance of the social
business phenomenon.
The Origins of the Social Business Model
In the last twenty years the number of active programs supporting the devel-
opment of social enterprise has multiplied many times over. In particular, the
social enterprise form has achieved a high international profile because it is
thought to be extremely successful in addressing the unmet needs of the poor-
est in society (Seelos and Mair 2005). A growing number of high-profile and
generously funded bodies now exist to promote the social enterprise concept,
including Ashoka, the Skoll Foundation, the Bill and Melinda Gates Founda-
tion, the Schwab Foundation for Social Entrepreneurship, and the Grameen
Foundation. These bodies emphasize the supposed achievements of individual
social entrepreneurs in terms of securing poverty reduction and “empowering
the poor.”
Over the years, Yunus has had much personal interaction with the key indi-
viduals and institutions that lie behind the social enterprise concept, even going
so far as to serve in a nonexecutive capacity as an adviser to, or board member
Muhammad Yunus’s Model of Social Business 105
for, quite a few of the highest-profile social enterprises.2 Their influence on his
thinking seems clear and vice versa. Yunus is very much convinced by the social
enterprise model as an alternative to the traditional investor-driven enterprise
structure more familiar in capitalism.
Yunus’s social business model differs from the conventional social enter-
prise model in that it always includes a for-profit unit, but shareholders are
only interested in maintaining the value of any capital injection, not in securing
dividends or any other share of the profits. It is supposed to use its profits not for
dividend payouts to external shareholders or to inflate management salaries and
bonuses, but to pursue a defined social goal. This social goal may involve, for
example, arranging free health care for the poor, providing microcredit, or sup-
plying low-cost technology to rural villages. Precisely because it is financially
self-sustaining, Yunus sees the social business model as more transformative in
the long term than the more common social enterprise model. A social business
can continue to produce good things in the community into the future without
having to rely on external support or subsidies, like so many social enterprises
are forced to do.
Importantly, the social business model also has some obvious similarities
to the cooperative enterprise. A cooperative is a member-owned business
unit that is also designed to reinvest some or all of its surplus back into the
business in order to benefit members through higher pay, constantly improv-
ing working conditions, more social benefits, and so forth. And like a social
business, a cooperative also possesses a radically different approach to its role
within the community. History confirms that cooperative enterprises, by their
nature and design, are typically the very best corporate citizens. In so many
areas of operations, the cooperative format has been a boon to society and espe-
cially to the poorer members of society and to the most vulnerable communi-
ties (Birchall 2003, 2004). Many also support cooperatives because they have
proved to be the only practical enterprise structure that historically has dem-
onstrated the potential to become a genuine, workable, democratic alternative
to undemocratic capitalist enterprise structures (Zamagni and Zamagni 2010;
Novković and Webb 2014). Indeed, had it not been for the determined resis-
tance from those self-interestedly seeking to maintain the prevailing capitalist
order intact—capitalist businesses, right-wing political parties, the media, the
financial sector3—it is possible that the democratic cooperative business model
would already have largely replaced the conventional investor-driven capitalist
enterprise, and so capitalism itself.4
In fact, the principal difference between the cooperative enterprise and a

Yunus-style social business is the obvious advantage of the cooperative enter-
prise structure: first, its internal emphasis on democracy, equality, and social
justice, which provides a decent and dignified work environment; and second,
the fact that these core objectives are inevitably projected out into the commu-
nity at large, helping to create a more harmonious and sustainable economy and
society (Wilkinson and Pickett 2014).
One might be forgiven, then, for thinking that the cooperative enterprise
seems like the perfect form of social business—in fact, a very much more pro-
poor, accountable, and genuine community development format than Yunus’s
top-down social business model.5 Until recently, however, Yunus has always
very explicitly and firmly rejected the cooperative business model as a possible
template from which to build the social business movement. Indeed, as one
of his key acolytes, Alex Counts (2008, 61), has noted, Yunus has instead posi-
tioned himself as “a leading critic of the cooperative movement.” Some may find
Yunus’s view on this model rather surprising. After all, he is explicitly reject-
ing the democracy-building, community-focused, tried-and-tested cooperative
enterprise model in favor of his own more individualistic, top-down, unac-
countable, and undemocratic model of social business. We hope to explain this
conundrum, and to illuminate other important issues, by briefly examining
what Yunus has referred to as a best practice cluster of social businesses—his
own Grameen Bank family of social businesses.
Unpacking the Grameen Bank Family of Social Businesses
Grameen Bank was the first in what turned out to be a growing family of social
businesses that were founded by Yunus and were, in very many cases, subse-
quently presided over by him as CEO, president, or chairman. Using Grameen
Bank’s name recognition, and also funding and guarantees from the bank, the
Grameen family of social businesses was gradually expanded. By the 2000s,
social businesses associated with Grameen Bank were everywhere in Bangla-
desh and also present all around the world. In addition, Yunus developed a
particular passion for teaming up with some of the largest multinational cor-
porations (MNCs) in the world, eventually launching projects in conjunction
with Monsanto, Danone, Adidas, and many others. As with any conglomerate,
some of the earliest social businesses in the Grameen family have been closed
down in the intervening years, notably an ill-fated tie-up with Monsanto. Other
social businesses continue to excite supporters, including Grameen Danone.
More recently, Yunus has come under very strong criticism for his role
in Grameen Bank and, in particular, for creating the opaque structure of the
Grameen family of social businesses and for assuming a very central role in
managing them. A major catalyst for this criticism was The Micro Debt, a docu-
mentary released in 2011 by award-winning Danish filmmaker Tom Heine-
mann.6 The Micro Debt exposed fundamental drawbacks to the microcredit
model, as well as major management lapses within and unethical practices of
Grameen Bank. The most important revelation was of programmed deception
by Yunus with regard to a US$100 million soft loan from the Norwegian aid
agency to Grameen Bank. This loan was meant by the Norwegians to provide
low-interest housing mortgages for the poor in Bangladesh, but it was secretly
transferred around the Grameen family of social businesses so that it could be
used for much higher-margin conventional microlending activities, the prob-
able aim of which was to help keep Grameen Bank afloat at a time when it was
experiencing quite serious financial difficulty.7
Not least because it went on to win a raft of international awards, Heine-
mann’s documentary forced the government of Bangladesh to respond to the
serious charges against Bangladesh’s most famous enterprise.8 After some delay
caused by the intervention on Yunus’s behalf of a number of high-profile micro-
credit supporters, notably Bill and Hillary Clinton, the government went ahead
with its plan to establish a special independent commission, known as the Gra-
meen Bank Commission. This body was charged with preparing a comprehen-
sive report on the management of Grameen Bank and, in particular, explaining
exactly what was going on in the Grameen Bank’s family of social businesses.
After deliberating for some time, the Grameen Bank Commission (2013)
produced an Interim Report. The Interim Report concretely identified a large
number of inefficiencies, ethical lapses, and allegedly illegal activities. As well
as helping to secure an almost complete media blackout of anything contained
in the Interim Report, Yunus’s supporters in the United States and around
the world put up strong resistance to any measures taken against Yunus and
Grameen Bank following the release of the Interim Report. Nevertheless, the
Bangladeshi government felt that it had to act decisively. Accordingly, in early
2014 it announced that the Grameen Bank family of social businesses was to
be restructured by a major overhaul that would reintroduce elements of state
oversight and enhanced regulation. Yunus’s entire model of a social business

had come under threat. Since that time, however, very little has been done. As
of September 2016, the final report from the Grameen Bank Commission had
yet to make an appearance, and none of the social businesses operating under
the Grameen Bank banner had been restructured.
Grameen Bank
Grameen Bank is often referred to as the most important social business of our
time (Counts 2008). This claim is founded upon the idea that it has achieved its
original aim of greatly reducing poverty and promoting development in Ban-
gladesh. Certainly, Yunus has always been convinced, and has convinced the
world, that his Grameen Bank was dramatically addressing poverty. However,
Yunus’s analysis of poverty—its causes and its cures—is surprisingly weak, and
he offers very little in the way of realistic mechanisms through which his Gra-
meen Bank might reduce poverty and support bottom-up development (Bate-
man 2014a). Consider, for example, this view: “Poor people are bonsai people.
There is nothing wrong with their seeds. Only society never gave them a base to
grow on. All that is required to get poor people out of poverty is for us to create
an enabling environment for them. Once the poor are allowed unleash their
energy and creativity, poverty will disappear very quickly” (Yunus 2007, 54).
Although clearly uplifting, as are similar models based upon microenterprise
development (notably the parallel “ladder of development” concept expounded
by Sachs [2005]), all of these models of development have been exposed as seri-
ously flawed and essentially unworkable (Bateman 2014a).
First, Yunus entirely overlooks the issue of local demand for the simple
goods and services provided by the poor as microentrepreneurs. Sufficient
demand is simply assumed to always exist in a poor community, so that any
microcredit-induced increase in supply brought about by new and expanding
microenterprises will automatically find buyers. However, this assumption,
which economists have long known as “Say’s Law,” or the notion that supply
creates its own demand, is a fallacy. As the late Alice Amsden (2010) made
brilliantly clear, it is precisely this fundamental misunderstanding in the inter-
national development community that accounts for why so many antipoverty
projects have ultimately failed. Without some form of stimulation to the level
of local demand, the programmed increase in the supply of, say, better-trained
youth or microentrepreneurs has had little to no impact. One might also view
Yunus’s logical error here as akin to the error made by those who long argued
that famines were caused by a lack of food and that more food availability would
quickly remedy the problem when, as Amartya Sen (1981) famously showed, the
fundamental problem was actually the limited purchasing power of the poor,
which prevented them from buying the food that was often quite widely avail-
able in a famine region.
However, what if one considers the longer run in order to argue that grow-
ing local demand might help to underpin growing local consumption achieved
through more microfinance? Might this situation not open up the market space
for more informal microenterprises supported by more microfinance?
Bangladesh has indeed experienced steadily improving poverty statistics
since the 1990s, and average incomes have risen in many poor communities,
as has local demand. However, we have little to no evidence to confirm that
the microfinance model is causatively linked to poverty reduction (most ana-
lysts think the dramatic rise in remittance flows from six million Bangladeshis
who now work abroad and the arrival of a garment-manufacturing industry
are responsible for the hike in average incomes). Among other things, most of
the microcredit accessed in Bangladesh in recent years has been used to sup-
port consumption spending, not productive investment as claimed by those
who argue in favor of the positive role of microfinance. Put simply, the most
obvious explanation here was that marginally better off communities in Ban-
gladesh could increasingly afford to buy important items on (micro)credit,
which accounted for its increased use and also the longer-term correlation with
poverty reduction. Moreover, while the idea that microcredit was the cause of
this poverty improvement in Bangladesh appeared to be confirmed by a series
of studies produced by the World Bank, these studies were later revealed to
have been quite fundamentally flawed (see Bateman, chapter 1, note 9, this vol-
ume). Thus, even taking longer-run dynamics into consideration, we still have
no solid evidence that Grameen Bank has been a causative factor in poverty
reduction in Bangladesh.
A second awkward issue has to do with the veracity of the equally cen-
tral claim that the social business format would substantively benefit not the
founder but rather the target client group. This claim also appears to have been
disproved by subsequent developments. Grameen Bank’s status as a social busi-
ness was of great help in convincing prospective funders that the bank would
not be about benefitting Yunus personally, but all about helping the poor in
Bangladesh. Potential funders liked the altruistic element contained in such
an individualistic business format. In practice, however, as the Interim Report

found time and time again, Grameen Bank operated in a very untransparent
and unaccountable manner, and it was difficult not to conclude that it was
covering up the real beneficiaries of its operation. Thanks to his association
with Grameen Bank, Yunus himself went on to become an extremely wealthy
individual.9 In addition, numerous other well-connected individuals and con-
stituencies appear to have been quietly enriched by working in and around Gra-
meen Bank, notably those individuals and organizations associated with the raft
of social businesses that Grameen Bank has founded through the years.
Related to this story is the disturbing fact that a social business has even
less oversight than an investor-driven company, and with no member involve-
ment or democratic checks and balances (as in, say, a functioning coopera-
tive), the founder is able to operate his or her creation pretty much as he or
she wants. Normal operational procedures can be sidestepped. For example,
few investor-driven business or cooperative enterprises would tolerate a sal-
aried full-time CEO holding down a large number of additional paid positions,
as well as spending a substantial amount of time abroad on paid projects. Yet
Yunus was able to hold numerous paid positions in the Grameen family of
social businesses alongside his full-time role as CEO of Grameen Bank, and
he also continued to travel the world, paid to give speeches, advise numerous
organizations, and promote his own best-selling books. It is telling that there
would appear to have been no change whatsoever to his punishing schedule
even though Grameen Bank was at times on the point of collapse due to over-
lending (Chen and Rutherford 2013).
An even more serious problem concerns the impenetrable wall of silence
that surrounds one of the main businesses working with Grameen Bank. This
is not a social business, however, but a private company called Packages Cor-
poration Ltd., which happens to be the Yunus family–owned printing business
started by Yunus’s father in 1961. Beginning as Pakistan Packages Corporation,
it went on to be the sole supplier to Grameen Bank, which generated a huge
demand for paper, packaging, and printed items. Importantly, Yunus sits on the
board of Packages Corporation Ltd. and is a shareholder. As the Interim Report
makes clear (Grameen Bank Commission 2013, 77), Packages Corporation Ltd.
has long enjoyed a number of important benefits arising from its link to Gra-
meen Bank: it has been the sole supplier to Grameen Bank without undergoing
any awkward tender procedures as per Grameen Bank rules; it has availed itself
of a number of low-interest business loans from Grameen Bank; and it has been
allowed to default on some of these low-interest loans.
Such a cozy arrangement is not just illegal in Bangladesh; it would be con-
sidered an illegal arrangement in virtually every country in the world. Yet until
very recently, even after the full and unvarnished details of the arrangement
became known to the public (bdnews24.com 2011), no objection to the role of
Packages Corporation Ltd. was ever raised by anyone inside Grameen Bank or
by anyone in the global microcredit industry. The international development
community, which regularly urges the governments of developing countries to
aggressively deal with corruption and fraud, has remained completely silent
about the obvious ethical and corruption issues raised by Grameen Bank’s links
to Packages Corporation Ltd.
A third problem with Grameen Bank operating as a social business is related
to what is called the “founder syndrome.” Unlike virtually any other format,
the social business allowed Yunus to ensure that a more democratic manage-
ment structure could never emerge. Yunus was also able to consistently avoid
nurturing any successor in case this person preempted his total control of the
Grameen Bank family of social businesses.10 The result, inevitably, was that Gra-
meen Bank evolved into a dangerously fragile one-man show. As the Interim
Report noted repeatedly, no one could challenge Yunus’s views on a whole range
of operational and strategic matters, including the very fundamental issue of
his rapidly growing Grameen Bank to the very brink of collapse in the new
millennium (Chen and Rutherford 2013). The social business model made it
possible for Yunus to constantly refuse to let go of his social business empire,
even as he was accumulating more and more positions in a range of other social
businesses. In virtually any other form of business, such extreme multitasking
would have been viewed as impossible and seriously problematic, whether by
shareholders (in an investor-driven company), by state overseers (in a public
company), or by members (in a cooperative). But in a social business, almost
no matter the level of inefficiency and misdeeds, very little can be done to prize
the founder away from his or her creation.
When Yunus’s management came under increased scrutiny in 2013, he and
his supporters argued that Grameen Bank was all along a financial coopera-
tive owned and controlled by its poor women members, so that he actually
had far less responsibility for things going wrong than the Bangladeshi gov-
ernment claimed was the case (see also Karim, chapter 11, this volume). This
transparently false claim was clearly a public relations tactic designed to excul-
pate Yunus from any serious wrongdoing. Although its poor clients do indeed
own token shares in Grameen Bank, and from early on nine women borrower-
shareholder directors served on its board, these borrower-shareholder members
have never taken any meaningful role whatsoever in actually managing, much
less “controlling,” the institution (Grameen Bank Commission 2013, 47–53).11
These women were simply selected by top management or nominated by Yunus
himself. Until recent events forced Yunus to “activate” them in support of his
campaign to remain in full personal control of Grameen Bank, they appear to
have been quite happy to go along in this manner (see Daily Star 2013).
Fourth, and finally, Bangladesh stands out among its Southeast Asian neigh-
bors for the fundamental weakness of its state sector. At least part of the rea-
son for this adverse situation, it is now widely accepted, is the rise of social
businesses. Starting with Grameen Bank, a number of social businesses have
effectively monopolized those areas in which state capacity should have been
constructed for the benefit of the general population (see Karim, chapter 11, this
volume). Functional state capacity does not simply emerge: in most cases, it has
to be fought for, mistakes overcome, lessons learned, and rebuilding under-
taken in the event of failure. However, if key individuals constantly militate
against the construction of these key state capacities, the fight is even harder.
Yunus (with Jolis 1998, 214) has not been shy about revealing his extreme dis-
taste for any state-building activity, as he famously made clear in the following
statement: “I believe that ‘government,’ as we know it today, should pull out of
most things except for law enforcement and justice, national defence and for-
eign policy, and let the private sector, a ‘Grameenized private sector,’ a social-
consciousness-driven private sector, take over their other functions.”
This fundamental belief helps us begin to explain why social businesses in
Bangladesh—starting with Grameen Bank and later BRAC, ASA, and others—
have fought desperately over many years to appropriate the legitimacy and
funding otherwise destined to support the construction and operation of
crucial state capacities. And they have been very successful in this endeavor,
which is why they now rank among the world’s largest social businesses, but
also why state capacity in Bangladesh remains among the least developed and
most primitive in the world. Scholars such as Nancy Fraser (2013) summa-
rize this “disturbing coincidence”: “Microcredit has burgeoned just as states
have abandoned macro-structural efforts to fight poverty, efforts that small-
scale lending cannot possibly replace [so that a] perspective aimed originally at
democratising state power in order to empower citizens is now used to legiti-

mise marketisation and state retrenchment.”
And the problem is not just that Bangladesh lacks the capacity to adequately
deal with everyday public policy issues such as employment, education, infra-
structure, health, transport, and so on, which in almost all countries are seen as
best coordinated and provided by the state. One could also argue that Bangla-
desh has failed to build any sort of bureaucratic “developmental state” structures
that might have engineered an “economic miracle” similar to those enjoyed by a
growing number of Bangladesh’s (now far richer) Asian neighbors (see Amsden
2001; Chang 2006). Learning from each other and constructing important pro-
active state capacities, Bangladesh’s most astute Asian neighbors have escaped
endemic poverty and underdevelopment in a manner that Bangladesh’s social
businesses have been quite unable to emulate.12
Instead, as Shelley Feldman (2003) reports, Bangladesh’s poor have ended
up less empowered and mobilized than the poor in neighboring Asian coun-
tries. They are dependent upon social businesses that claim to speak on their
behalf and that provide whatever services these social businesses see fit in the
short term. This result is a form of what has been termed the “depoliticisation of
development” (Hout and Robison 2009)—the problematic idea that unelected
bodies might usefully substitute for democratically mandated public bodies.
Bangladesh’s failure to carefully build state capacities that can provide for real
long-term structural transformation goes to the very heart of the problem engi-
neered by Grameen Bank and other social businesses in that country.
Grameen Telecom
As Grameen Bank began to grow, it used its own assets and guarantees to invest
in various affiliates. By the 2000s, Grameen Bank owned or controlled a wide
range of social business affiliates dedicated to some activity of interest to the
poor (telecommunications, water, health, education, etc.), generally with Yunus
acting as the CEO of each offshoot. One of the first of these social businesses
was Grameen Telecom, which went on to become the second most important
social business within the Grameen Bank family after Grameen Bank itself.
The key mover behind Grameen Telecom was the social entrepreneur Iqbal
Quadir. In 1996 Quadir brought together Grameen Bank, through its new Gra-
meen Telecom unit, and the Norwegian telecom company Telenor to form Gra-
meenphone. Quadir wanted to promote local employment opportunities for
women in poverty by having large numbers of them sell mobile phone time to
their neighbors. Grameen Bank would provide an initial investment of US$10
million, plus the crucial microloans to the so-called telephone ladies, who
would sell the services of Grameenphone. Telenor invested a very modest sum
of money (only US$40 million), which was mainly used in setting up the infra-
structure. Because the project was about “helping poor rural women to escape
their poverty,” it received a lot of support, including from abroad. Yunus’s high
profile was also important because after Grameenphone was initially denied a
license, he was called upon to mount a personal lobbying effort to convince the
Bangladeshi government to change its mind, which it did (see the discussion in
Yusuf, Alam, and Coghil 2010). The license was awarded almost for free, which
significantly boosted the new social business.13 Yunus got the venture started by
offering the important justification that Grameenphone itself would eventually
be converted into a social business, thanks to an agreement with Telenor, which
would eventually pass a large part of its shares in Grameenphone into the col-
lective hands of the telephone ladies.
Grameenphone was soon turned into a major financial success; it broke
even in 2000 and thereafter began to make spectacular profits. It soon became
known in financial circles as “the diamond in Telenor’s portfolio,” and very
substantial dividends were channeled back to Telenor’s home base in Norway.14
Grameen Telecom was also soon enjoying a very healthy flow of dividends.
As noted, the core poverty-reduction angle of the Grameen Telecom social
business was the anticipated improvement in the life of the telephone ladies,
women in poverty who would each access a Grameen Bank microloan (an
average of US$420) in order to set themselves up in business with a mobile
pay phone, selling airtime on the Grameenphone network. Very soon after its
establishment in late 1996, the project was declared a major success: an esti-
mated fifty thousand telephone ladies had been very quickly employed in vil-
lages across Bangladesh and were supposedly earning an income high enough
for them to begin to escape their poverty.
When the average incomes of the telephone ladies began to dwindle after
just a few years, however, this initial success in reducing poverty began to fade
away. Quietly underpinning the social business project was a standard set of
operational goals that were at serious odds with the laudable idea of benefitting
the telephone ladies. The initial phase of the project generally included one or
two (well-publicized) telephone ladies operating in their village and doing quite
well from their efforts. But in order to sell as much airtime as possible, and in
order to maximize profits, Grameenphone soon began to increase the number

of telephone ladies it worked with. Unlike in developed economies, where com-
panies recognize that sales territory is the crucial variable in the success of an
individual salesperson, in Bangladesh Grameenphone turned out to be far more
interested in upping its marginal revenues and overall profit than in securing
a decent living for the telephone ladies. Grameenphone thus quickly dropped
its initial plan to peak at 50,000 telephone ladies; by 2005, it had more than
280,000 telephone ladies involved in its operations and by 2011 a grand total of
673,000 operators of both sexes (ADB 2013, 21).
Entirely predictably, displacement effects began to manifest. Very healthy
annual incomes of around US$750–US$1,200 per telephone lady began to
plummet, falling to just US$70 by 2005. Between April 2003 and December
2011, the average incomes of the telephone ladies (and some telephone gentle-
men) fell to around 5 percent of the high achieved in April 2003 (ADB 2013,
21). The much-celebrated poverty-reduction component of Grameen Telecom’s
social business design thus completely disappeared in the face of commercial
imperatives. Most of the telephone ladies were forced into other businesses in
order to survive. As the chief of technical services at Grameen Telecom, Mazha-
rul Hannan, admitted at the time, “The program is not dead . . . but it is no
longer a way out of poverty” (Shaffer 2007).
The Grameenphone project is today hugely profitable for Telenor and also for
the social business Grameen Telecom, whose social business format was quite
decisive in helping get the project off the ground. The telephone ladies, how-
ever, appear to have gained very little from engaging with the project. As one
Grameen Bank loan officer lamented as early as 2007, “Today, poor women who
go into the phone business stay poor” (Shaffer 2007). Even though some fairly
routine corporate social responsibility–related activities were later introduced
to try to help the telephone ladies recover from their predicament, mainly to
minimize the adverse publicity that had begun to emerge, it is widely accepted
that the telephone ladies no longer have any role to play in, or way to gain from,
this hugely profitable project.
One must immediately inquire why no effort seems to have been made to
support the telephone ladies in other obvious ways. For example, Grameen-
phone generated significant dividends that were paid to Grameen Telecom.
Grameen Telecom could therefore have quite easily supported the telephone
ladies itself by apportioning a large part of this dividend to them. However, not
only did Grameen Telecom not share the dividend with the telephone ladies,
no one really knows who actually does benefit from these dividends. In spite
of much questioning on this important issue, the Grameen Bank Commission
(2013, 57) was pointedly unable to “trace the large sums of money that have
been given to Grameen Telecom from its holdings in Grameenphone Limited.”
Also mysteriously failing to get off the ground were plans to transfer Grameen
Telecom’s shares in Grameenphone over to Grameen Bank, which would have
significantly raised the value of the Grameen Bank shares held by the women
and perhaps improved their lives that way (Grameen Bank Commission 201,
57). All told, as a high-profile social business claiming it was brought into exis-
tence “to benefit the poor,” Grameen Telecom has been completely unwilling to
follow through on its self-declared mandate.
In fact, the very real impression given by Grameen Telecom has been quite
the opposite: the social business format appears to have been nothing more than
a convenient feel-good platform upon which a hugely profitable business proj-
ect, Grameen Phone, could obtain a license, get initial funding, and be allowed
to expand at very little risk and cost to both of the main parties involved—
Telenor and Grameen Bank. The social business seems to have served no other
purpose than to effectively camouflage the straightforward business activities of
Grameen Bank and Yunus; its founding goal to lift as many poor Bangladeshi
women out of poverty as possible was simply dispensed with when it became
inconvenient.
Grameen Danone Foods Ltd.
In early 2006, Yunus of Grameen Bank and Frank Riboud, the CEO of the lead-
ing multinational dairy group Danone, met in Dhaka to sign a memorandum of
understanding that resulted in the formation of Grameen Danone Foods Ltd.
(GDFL). This company was to be a high-profile social business that would help
the poorest in Bangladesh through job creation in their communities, princi-
pally by recruiting large numbers of people to sell a new low-cost yogurt prod-
uct (Shakti doi) that Danone claimed had a number of health benefits, as well
as high nutritional content. GDFL was established with a fifty-fifty ownership
structure. Danone put US$500,000 of its own money into GDFL, with the rest
coming from Grameen Bank and its affiliates. Originally, Danone expected only
its initial capital to be returned after three years, and any profit thereafter would
be reinvested back into GDFL, less a 1 percent dividend to its shareholders. As
with most initiatives concerning Grameen Bank at the time, the project was an
instant media sensation. And even today, Yunus puts forward GDFL as the best
example of his work with social businesses.
However, right from the start a number of serious problems surfaced, to the
extent that the real, as opposed to the declared, objectives of the project were
soon being called into question. First, as with Grameen Telecom, one of the
central founding objectives was employment creation in the very poorest com-
munities thanks to the new distribution channel. Accordingly, GDFL recruited
around sixteen hundred saleswomen to sell the yogurt locally, and at first, each
saleswoman was able to sell around sixty to seventy pots per day. Partly thanks
to a rise in milk prices and, initially, a weak product (it was not sweet enough),
but also thanks to rapid growth in the number of saleswomen, average sales and
earnings per seller began to decline quite rapidly after the launch. It was not
long before a growing number of the original saleswomen had abandoned the
business because servicing the original microloan became very much harder on
a declining turnover, which in turn created serious repayment problems.
The initial excitement surrounding GDFL quickly began to give way to
growing anger and disillusion among the vast majority of saleswomen in the
distribution chain. Just as in the case of the telephone ladies, no one in GDFL
had thought—or perhaps it was of no interest to them—to limit the number
of saleswomen so that each saleswoman would have a specified territory to
comfortably and profitably service. With the publicity surrounding the proj-
ect rapidly turning negative, urgent efforts were made to find other unrelated
things the saleswomen could do, such as sell Internet time on their mobile
phones. Eventually, GDFL dropped the saleswomen (though it apparently par-
tially reinstated them in 2012) and used regular retail outlets to sell the product.
It is supremely telling that when now referring to the GDFL project, Yunus
(2012) entirely avoids any mention of the saleswomen and retrospectively justi-
fies the project in terms of a completely new goal: “to distribute low-cost, forti-
fied yogurt to mitigate the malnutrition from which nearly half of Bangladeshi
children suffer.”
A second, equally fundamental problem was that the relatively high price
of the product led to low demand in the poorest rural areas that were sup-
posed to be the target areas for the project. Rural residents were largely too poor
to afford the new yogurt, and the fact that the poor generally have very little
spending power was apparently overlooked by those designing the product.
On belatedly realizing it had miscalculated, GDFL decided to produce a much
larger pot of yogurt to be sold at a higher price to the richer urban residents of
the capital city, Dhaka. Distribution of the yogurt to rural areas was gradually
phased out over time, while the richer areas were increasingly serviced with the
more expensive product. Most importantly, GDFL appears to have dropped its
initial pro-poor ideas about subsidizing the consumption of the yogurt in the
poorest rural communities using profits made in the urban areas. The need to
ensure financial self-sustainability, as in any other investor-driven business, has
thus triumphed over all of the noble aims propounded by the founder of the
social business.
A third, less immediate but still important, problem involves the significant
benefit that the Danone company extracted from the project at the very same
time that the intended beneficiaries were gaining nothing. The principal ratio-
nale for Danone’s involvement seems to have been strictly commercial, and the
tie-up with Grameen has been very useful indeed. Above all, Danone has been
able to build up, very cheaply and almost risk free, a major distribution and
“visibility” platform for its future dairy products in Bangladesh. As Danone’s
own officials confirmed, GDFL was an ideal low-cost entry ticket into a poten-
tially difficult market (Peerally and Figueiredo 2013, 20). The idea of supporting
the poor seems to have been a concept for the public relations department to
play with and disseminate rather than a basic operational or strategic principle
that Danone intended to follow through on in Bangladesh, any more than it has
been willing to follow ethical guidelines in other developing countries.15
Should the social business model be used to help a wealthy multinational
corporation get established in a poor country that already has plenty of dairy
producers capable of servicing local demand? Much better business formats
than the GDFL project existed in Bangladesh, but they were deliberately over-
looked in favor of a social business. Notably, the farmer-owned dairy coopera-
tive option was completely ignored, even though it has an excellent track record
in Asia as a poverty-reduction and bottom-up development tool and achieved
great success in neighboring India thanks to Operation Flood.16 Might not the
social business format used by Danone, with the complicity of Grameen Bank,
have been a kind of Trojan horse to allow Danone to enter a market that would
not otherwise have taken kindly to its products?17 And might not the existence
of the high-profile social business option have displaced organizational alter-
natives, such as grassroots, farmer-owned cooperative enterprises, that would
have been far better for the poor in terms of promoting sustainable poverty
reduction?
The only realistic way to describe the GDFL social business project is as an
intervention that has quietly conveyed most of its benefits into the hands of the
two institutional partners involved, with very little benefit going to the poor
participants who were initially claimed to be “what the project is all about.”
Social Business Is a Problematic Concept
Yunus has been able to imbue the social business concept with legitimacy, and
it remains one of the most talked about concepts in the international develop-
ment community and in Western governments. Based on the important evi-
dence provided by the Grameen Bank family of social businesses, evidence
that in many respects gave rise to the entire concept, the social business model
does not appear to be nearly as transformational and pro-poor as has been
advertised. Even though the reality largely fails to match up with the rhetoric,
however, Yunus continues to expound upon his social business model, and it
continues to rise in popularity. Why?
First, the social business model, like the microfinance model, has been well
received and funded on the grounds that it can perform a useful legitimizing
function within global capitalism. It helps to further validate and entrench what
are viewed as the main driving forces under capitalism—individual entrepre-
neurship and the profit motive—but now with a pleasing element of “social
concern” added by social entrepreneurs. The hope is that the very worst aspects
of contemporary capitalism—unemployment, inequality, poverty, lack of dig-
nity and democracy at work—will be partially addressed through modified, but
still intrinsically capitalist, instruments and incentives. The poor will benefit
from the supposedly supreme flexibility of the entrepreneur: one minute seek-
ing wealth and benefitting society in the unintended sense of Adam Smith, the
next minute directly serving the poorest in the community. The public relations
industry then spins the very limited results into a wave of change propelled by
“responsible” capitalists.
Rather than seeking out their own collective solutions to poverty, as his-
tory shows unequivocally to be the most successful strategy, the poor are being
sidetracked into believing that all they need are individual social entrepreneurs
armed with ideas for social businesses. Capitalism has its problems, the argu-
ment goes, but social businesses will creatively deal with them, so the poor
do not need to pursue fundamental change. Neoliberal policy makers have
long shown their disdain for state capacity and popular participation and have
latched on to whatever institutional models might be amenable to phasing out
these alternatives. The social business model is but the latest to be adopted.
A second, related concern is the way the social business model has been
deployed by many, including Yunus, to attack the cooperative form of busi-
ness—the only real alternative to the conventional investor-driven enterprise
that plays such a central role in capitalist theory, ideology, and practice. Those
promoting social business often argue that common ownership of resources
produces inefficiencies and that democratic governance in cooperatives leads
to rigidities in the supply system. Social entrepreneurs all too often declare
cooperatives to be not “entrepreneurial enough” or even not “social enough.”
This is where the social business model enters the discussion as the ideologi-
cally preferable alternative to genuine participation and bottom-up economic
decision making and policy formulation, processes that elites fear might begin
to challenge the legitimacy of the neoliberal model if they were to prove suc-
cessful. Even though all the evidence points to the resilience and sustainability
of the cooperative business form, which rides on the social capital of its mem-
bers and communities (Birchall 2013), the social business model has been used
to invalidate the cooperative option. The kind of social business that relies on
“heroes” and replaces government functions and capacity is also the type that
serves neoliberalism well—it is much easier to control, and is open to elite con-
trol, than is a democratic cooperative enterprise (Ridley-Duff and Bull 2011).
A third worry is the way that conventional investor-driven businesses, and
particularly multinational businesses, have warmly embraced the social busi-
ness model in order to surreptitiously achieve their own corporate goals. As we
have documented, the social business is all too amenable to being used to pro-
mote the core goals held by the mainstream business sector, even as lip service is
paid to the initial goals of the social business. Opportunistically linking up with
a social business brings many short-term benefits to an investor-driven enter-
prise, specifically being able to forge better links with government, generate
favorable publicity among potential consumers, and raise additional financial
support. Links with a social business may even help dilute an antipoor cor-
porate reputation. However, once a corporate goal has been reached—a mar-
ket entered, key regulations watered down, and so forth—a corporation can
simply ditch its social business partner and proceed in any way it might wish.
The social business format thus provides a new feel-good way for conventional
investor-driven businesses to secure benefits otherwise unobtainable through

conventional business practices.
Conclusion
We have argued that Yunus’s social business concept lacks any demonstrable
evidence of success to date, even (if not especially) in the case of the three most
high-profile examples used by Yunus to launch his new concept: Grameen
Bank, Grameen Telecom, and GDFL. Like microfinance, the social business
concept might well be a new form of smoke and mirrors designed to seduce
public opinion in general and the poor in particular into thinking that we have
here (another) example of individual entrepreneurship that can be creatively
deployed to benefit them. While it is still early days, it would appear so far that
little in the concept of social business is of real and lasting benefit to the poor
and, in fact, much remains to be extremely wary of.
Notes
1. The European Commission (2012) also uses the term social business to describe
a business that will reinvest surpluses into the social cause it advocates, but one
that is presumably transparent.
2. For example, Yunus is a director emeritus at the Grameen Foundation USA and
a board member of the Schwab Foundation for Social Entrepreneurship.
3. Many early analysts, notably leading guild socialist Cole (1913), correctly pre-
dicted that the capitalist class would bitterly oppose the emerging cooperative
movement in case it genuinely empowered the working classes.
4. By the mid-1900s the cooperative format (i.e., saver-owned building societies)

had indeed replaced most capitalist financial institutions in some areas, such
as housing finance. But in the 1990s they were demutualized by the Thatcher
government on the basis that they would perform ever so much better as private
shareholder–owned businesses. What happened instead was almost exactly the
opposite: senior managers’ pay was raised dramatically, hugely risky business
activities were entered into, and prices began to rise. Thanks to the collapse of
so many of the risky new investments from 2006 onward, the building society
movement that began in the late 1700s was almost entirely destroyed in a matter
of years. Almost all of the largest building societies either collapsed or ended
up being merged under duress into other conventional institutions (Elliot and
Atkinson 2008).
5. The cooperative enterprise is widely accepted as the principal practical mani-

festation of the social enterprise form (Novković and Brown 2012). Of course,
cooperative enterprises are not without their challenges, but the important point
is that when they work, they realize a much larger set of internal and external
social gains compared to Yunus’s concept of a social business.
6. See the website http://tomheinemann.dk/the-micro-debt/.
7. The case made by Heinemann was built upon previously hidden correspon-
dence between Yunus and the Norwegian aid agency. Once the Norwegian
government found out about the transfer some two years later, they immediately
asked for the money to be returned, and most of it was. So as not to embarrass
Yunus and the Norwegian government, and to avoid above all any damage
to the then-stellar reputation of microfinance, all parties to the matter agreed to
keep quiet about the incident, and the correspondence was quietly consigned to
a hidden archive. It was only after being tipped off by an anonymous informer
that Heinemann was able to use Norwegian freedom of information laws to
request the original copies of the correspondence.
8. Some of Yunus’s political enemies accused him of personally appropriating the

US$100 million, which was untrue and not a charge made in the Heinemann
documentary. Although knowing perfectly well that this false claim was not in
Heinemann’s documentary, many microfinance supporters, led by the Grameen
Foundation USA, nevertheless used it as part of a carefully coordinated smear
campaign against Heinemann’s documentary and its critique of the micro-
finance model (see Karim, chapter 11, this volume).
9. For a long time, this issue was one of the most taboo subjects in the global
media. However, in 2013 Yunus was charged with evading taxes of US$1.6 mil-
lion on the income he had accumulated between 2004 and 2011, which turned
out to be a very healthy US$6.5 million. Yunus’s lawyers argued that this income
was not taxable, being mainly a result of work undertaken abroad (book sales,
speaking engagements, etc.; see OCCRP 2013).
10. Yunus also forced out his longtime deputy, Dipal Barua, who was the obvious
choice to succeed him (see Roodman 2010).
11. It is worth quoting at length from the Grameen Bank Commission (2013, 50):
“The Commissions’ [sic] examination of the Minutes of the Board reveals that
in not more than three of the ninety-one Board meetings, from 1983 to 2010,
have the ‘borrower-shareholder’ Directors had anything of substance to say
and that most interventions that did take place were limited to lauding the
work of the Managing Director and thanking him for the work done. This is the
recurrent and distinguishing feature in almost all the Board minutes. Moreover,
those who were present in these Board meeting observed that there is remark-
able unison whenever these elected Directors have had anything to say—almost
as if they were carefully ‘coached.’ The only other issue which prompted them
to intervene was when they had to plead for some benefit (promotion, leave or
special allowance) for their ‘Sir’ who happens to be their respective Loan Officer
but these entreaties are not recorded in the minutes for obvious reasons.”
12. Most notable here, of course, are the East Asian “miracle” countries of South
Korea, Taiwan, Malaysia, Indonesia, Thailand, and, most recently, China and
Vietnam.
13. In Pakistan in 2004, for example, Telenor had to pay the government nearly
US$300 million for the equivalent operating license, plus commit to a major
program of investment in infrastructure.
14. Grameenphone is, in fact, responsible for the largest outflow of capital from
Bangladesh (see Muhammad 2009, 41).
15. Much evidence from many countries shows that Danone is one of the very
weakest global companies when it comes to supporting the rights of the poor.
For example, as of mid-May 2014 Danone was one of the few companies refus-
ing to sign an agreement banning land grabbing from the poor in developing
countries (see Jocknik 2014).
16. The Indian government’s famous Operation Flood project established a dairy
supply chain that was almost completely under the control of the farmers, which
allowed for most of the value created to be passed down to them in the form of
higher prices and better margins. It went on to become the centerpiece of a his-
torically unprecedented episode of poverty reduction in India (see Cunningham
2009).
17. This would not be the first time. In 1998 Monsanto approached Yunus with an
idea to establish a social business operation that would promote Monsanto’s bio-
tech and agrochemical products and would be called the Grameen-Monsanto
Centre for Environment-Friendly Technologies. However, Yunus immediately
came under a torrent of criticism from all around the world for linking with a
company that was directly attacking biodiversity and indigenous farming prac-
tices and was simply using the Grameen name and reputation in order to enter
a market otherwise closed to it. In order to save Grameen’s image, Yunus quickly
backed off and the project was quietly shut down (see Blackstock 1999).
Part Three
Betrayal
Chapter Seven
Bosnia’s Postconflict Microfinance Experiment

A New Balkan Tragedy
Milford Bateman and Dean Sinković
Introduction
As the small, newly independent Balkan nation of Bosnia and Herzegovina

(hereafter Bosnia) began its struggle to recover from the vicious civil war that
raged in the former Yugoslavia from 1992 to the end of 1995, the international
development community promised its full support. One of the interventions
that the international development community argued would very quickly pro-
vide Bosnia with a solid foundation for postconflict recovery and reconstruc-
tion was the microcredit model. As very many saw it, microcredit would play
a central role in securing the peace by creating new jobs and incomes, address-
ing rising social exclusion and endemic poverty, helping to empower Bosnia’s
women, and, overall, facilitating a sustainable economic development trajec-
tory. Not long after it came to Bosnia, the microcredit sector was being por-
trayed by the international community and local media as having had a huge
positive impact in the country along precisely the anticipated lines.
This chapter shows that this uplifting narrative was almost entirely false.
We argue here that the microcredit experiment in Bosnia actually represents
a failed policy intervention of historic proportions. While a tiny number of
individual success stories have inevitably been flagged up by the main micro-
credit institutions (MCIs) and their international donor community sponsors,
the overall impact of the microcredit model has been to very seriously under-
mine the attempt to reconstruct and develop the Bosnian economy and society
in the postwar period.
127
128 Milford Bateman and Dean Sinković
Reconstructing Postwar Bosnia
At the end of the Yugoslav civil war in 1995, the international development com-
munity imposed upon the newly independent country of Bosnia a package of
neoliberal policies and programs virtually identical to those adopted previously,
and very destructively (see Andor and Summers 1998) in other Eastern Euro-
pean transition economies. One of the most important of the standard neolib-
eral policies forced upon the Bosnian government was microcredit. Microcredit
was deliberately positioned to be the market-driven intervention that would
address Bosnia’s huge postwar problems of unemployment, poverty, exclusion,
and a collapse in solidarity and cooperation. In a very real sense, given the
high level of resources invested, the international development community’s
aim was even grander than this—it was to turn Bosnia into the global testing
ground for postconflict microcredit (Bateman 2007a).1
One of the first organizations out of the gate was the World Bank with its
Local Initiatives Project (LIP), a network of nongovernmental organization
(NGO)–structured MCIs capitalized with an initial US$20 million. The glob-
ally active ProCredit microcredit banking group was also quick to come to
Bosnia, and it soon had an extensive branch network in place. The handful of
commercial banks that survived the civil war also wasted no time in “down-
scaling” out of lending to large state-owned companies and privately owned
small and medium enterprises (SMEs) and moving into highly profitable and
less risky microcredit applications. When Bosnia’s commercial banks were later
sold off to the large Western banking chains, this downscaling began to accel-
erate considerably. Significant amounts of capital began to flow from the banks’
head offices in Western capitals (Milan and Vienna in particular) and into
their Bosnian subsidiaries in order to expand the lucrative microcredit busi-
ness. These foreign-owned banks were also better able to mobilize local savings,
thanks to savvy marketing campaigns and their increased reputational capital.
Finally, after 2006 a completely new dynamic emerged in the form of specially
established microfinance investment vehicles (MIVs). Located in a number of
“tax-efficient” countries (notably Switzerland and Luxembourg), these MIVs
began to channel large volumes of wholesale funding into Bosnia’s MCIs for
on-lending.
The result was a quite spectacular increase in the supply of microcredit in
postwar Bosnia in little over a decade. By the end of 2008 the total volume of
MCI liabilities to international and, to a much lesser extent, local institutions
Bosnia’s Postconflict Microfinance Experiment 129
Table 7.1. Microcredit Penetration by Country (and Region)

in 2009
Global Borrower Accounts/

Ranking Country Population (%)
1 Bangladesh 25
— (Andhra Pradesh, India) 17
2 Bosnia and Herzegovina 15
3 Mongolia 15
4 Cambodia 15
5 Nicaragua 11
6 Sri Lanka 10
7 Montenegro 10
8 Vietnam 10
9 Peru 10
10 Armenia 9
11 Bolivia 9
12 Thailand 8
13 India 7
14 Paraguay 6
15 El Salvador 6
Source: Bateman 2011, 4.
and investors was US$621 million, which amounted to 39 percent of the total
volume of debt of all the nonbank MCIs in the twenty-seven countries of East-
ern Europe and Central Asia (see Pytkowska, Koryński, and Mach 2009).2 By
2008 nearly four hundred thousand microloans were active in Bosnia, amount-
ing to around US$770 million in a country with a population of only 3.8 million.
From a base of almost nothing in the late 1990s, by 2009 Bosnia was, astonish-
ingly, second only to Bangladesh in terms of microcredit penetration (table 7.1).
Almost immediately after Bosnia’s microcredit sector was established, yet
without any real evidence, the international development community and
microcredit advocates began to claim that it represented a major success story
(Goronja 1999; Berryman and Pytkowska 2005).3 For its part, the World Bank
also began to produce a steady flow of pronouncements in favor of its own
LIP microcredit program and, also without any real evidence, its brilliant sup-
port of the Bosnian economy and society (a typical example is Kuehnast 2001).4
Building to the required crescendo, then president of Women’s World Banking,
Nancy Barry, made the hugely important and oft-repeated claim that “any war-
torn country should look to Bosnia as a role model” (Dolan 2005).
Some independent analysts did not agree with this uplifting story and
claimed that in very many respects Bosnia’s microcredit sector was actually
structurally undermining the postwar recovery and development effort (Bate-
man 1999, 2003, 2006, 2007a, 2011; Bateman, Sinković, and Škare 2012; Drezgić,
Pavlović, and Stoyanov 2011). These warnings were largely ignored by the inter-
national development community and strenuously rebutted by the microcredit
industry itself. However, in 2009 Bosnia’s microcredit sector was revealed to be
a highly disruptive and exploitative force that was on the verge of complete col-
lapse thanks to greed, reckless lending, and egregious profiteering by its senior
managers (AMFI 2010).
As symptoms of overindebtedness increased in the years leading up to 2009,
falling local demand—a result of the 2008 global financial crisis—magnified
this problem into a full-scale crisis. Defaults rose to new heights, and almost
double-digit portfolio at risk (over thirty days) was reached. Loan provisioning
had to rise by more than 250 percent in just one year. The entire microcredit
sector experienced dramatic losses, which prompted additional financial, tech-
nical, and other forms of support from an international development commu-
nity fearful of the practical and ideological conclusions that would inevitably be
drawn if their flagship market-driven intervention for Bosnia collapsed.
The rescue effort was led by one of the institutions that had provided much of
the impetus for the growth of microcredit in Bosnia, the London-based Euro-
pean Bank for Reconstruction and Development (EBRD). The EBRD coordi-
nated a bailout of Bosnia’s microcredit sector by, among other things, sending
yet more low-cost finance flowing to the main MCIs for on-lending.5 Some of
the leading MCIs agreed to cooperate, reduce their growth rates, and share the
market, though others went in the opposite direction (for example, Prizma—
see following). The CEOs of some MCIs, including Selma Čizmić of LIDER,
admonished their peers for having created problems for the entire sector: “I
hope microfinance lenders will get back to the original purpose of microfinance
and will stop being too much into it for profit” (Cain 2010). The World Bank
(2014, 15) tried to assist with the rescue by establishing in conjunction with the
Swiss government a project designed to drive down the level of nonperforming
microloans (from an unacceptable 8 percent to 4 percent) and to maintain the
overall microcredit portfolio at what it called a “sustainable level” of around
US$350 million.
However, it remains to be seen if this attempt at stabilization can succeed in
the long term. It is taking place against a background of unrelenting economic
recession marked by very high unemployment (as high as 47 percent).6 This

recession has inevitably reduced the local demand for the sort of simple items
and services that microenterprises supply, leading to more intense competi-
tion and falling margins. At the same time, problems of greed and fraud in
the unregulated microcredit sector are still to be overcome. Several MCIs have
been forced to close on account of egregious levels of asset stripping, fraud,
and reckless lending—the most recent of which, Prizma, registered very dra-
matic losses before going under—while many of the surviving MCIs (notably
Mikrofin) are engaged in the very same practices with the full knowledge, if not
approval, of the international development community. Meanwhile, as the next
section makes clear, we have no evidence whatsoever to confirm that the supply
of microcredit in the postwar era has been of any real and lasting benefit, other
than to those supplying it.
The Key Claims for Microcredit Simply Do Not Stand Up to Scrutiny
A careful assessment of the accumulated evidence shows that the microcredit

model has been deeply damaging to the Bosnian economy and society on a
number of important fronts and over a much longer period than the boom-to-
bust of 2009.
The Lack of Sustainable Job Creation
By far the most important claim made on behalf of the microcredit model is
that it has created and sustained a very large number of jobs for poor individu-
als. As early as 2003, Monica Lindh de Montoya and James McNeil (2003, 10)
were claiming that Bosnia’s microcredit programs had “created and sustained”
upward of 180,000 jobs. In the same vein, the World Bank (2014, 13) has always
reported that thanks to its two LIP microcredit programs alone, more than two
hundred thousand jobs have been created or sustained in Bosnia.
However, further analysis reveals that these well-publicized claims are com-
pletely fanciful. First of all, the “evidence” deployed to support both claims
turns out to be linked not to any actual number of jobs but simply to the num-
ber of microloans disbursed: each microloan disbursed was simply assumed to
have created one or more jobs. This assumption was egregiously wrong not
least because most microcredit in Bosnia has been used not to underpin infor-
mal microenterprise development, which might conceivably have created some
Table 7.2. Main Reasons for Obtaining a Loan in 2001
Main Reasons for Obtaining a Loan (%)
Consumption needs 73.4

Reconstruction of dwelling 13.1
Other 12.7
Investment in equipment, land, building, animals 5.4
Purchase of inputs and working capital 2.5
Consumer durables 1.7
Purchase of dwelling 1.3
Source: Chen and Chivakul 2008, 13.
jobs, but simply to bring forward consumption spending. That is, as elsewhere
around the world (Bateman 2010), the poor have mainly used microcredit as a
form of hire purchase (HP), the financial innovation that became prevalent in
fast-growing developed economies from the 1960s onward. Data collected in
the first major postwar household survey in 2001 confirm that the initial moti-
vation was to provide support for consumption spending (table 7.2).
This emphasis upon consumption spending has continued, with many of the
MCIs openly admitting that they lend for consumption spending rather than
job creation via microenterprise development.7 Between 2001 and 2006, real
yearly total growth of credit (including microcredit) to households in Bosnia
was a healthy 50 percent, compared to just a 13 percent growth rate for credit
to all enterprises, including microenterprises (Chen and Chivakul 2008). By
2008 Bosnia’s microcredit sector accounted for nearly 5 percent of the total
financial assets in the entire financial system (World Bank 2015, 18). This sector
represented a not insignificant amount of Bosnia’s scarce financial resources,
which were flowing mainly into consumption spending, an area that not only
created very few jobs in the short term, but had no sustainable positive impact
on growth and development in the longer term.
A second fundamental problem accounting for the almost complete lack of
sustainable job creation has been the low level of local demand for the prod-
ucts and services actually supplied by microcredit-supported microenterprises.
This lack of demand revealed two important, but almost universally ignored,
downsides of the microcredit model: displacement and exit (or client failure).
Displacement refers to new microenterprises that survive and create some jobs,
but only by eating into the local demand that had been supporting already exist-
ing and struggling microenterprises, which are then forced to contract their
own employment to a similar degree. Exit refers to new microenterprises that

fail, usually from a lack of local demand in the markets in which they operate.
We have abundant evidence that high levels of job displacement have greatly
affected microcredit programs in Bosnia. This factor was first registered right
after the conflict ended, as Michael Matul and Caroline Tsilikounas (2004, 458)
reported: “Markets [in Bosnia] were flooded with goods after the war, many
people were producing bread, growing cows or chickens but did not know
where to sell their goods given the large level of available supply and market
saturation. Many refugees were selling clothes that had been imported from
Hungary and had to sell them for very small margins due to high competition.”
Clearly, new microenterprises formed under such conditions were only able to
survive by taking demand/clients away from other struggling microenterprises,
which either contracted or simply closed as a result, thus leading to very much
less of a net employment gain than microcredit advocates contended.
Displacement became even more serious later on, however, as the initial
reconstruction demands (house reconstruction and repair, clothes, garden
supplies, etc.), which were very often met by local microenterprises, were fully
satisfied. This emerging problem was well illustrated by a major UK government–
funded survey of three Bosnian cities: Travnik, Trebinje, and Zenica (Birks Sin-
clair Associates Ltd. 2002). The survey found that in Trebinje local demand
absorbed 89 percent of local business output, in Zenica 75 percent, and in
Travnik 65 percent. Very simply, the overarching constraint upon the new and
expanded operation of small and microenterprises was stagnant local demand,
and the study could only conclude that little, if any, net job creation was pos-
sible in these cities even with additional financial support (such as microcredit).
Using microcredit to establish yet more competitors for these already-struggling
local producers as a way to resolve unemployment would only result in major
displacement and exit effects, and so no net improvement in the jobs situation.
More recently, this important point was confirmed by Annette Kraus and Julia
Meyer (2014) in a follow-up survey of Bosnia’s overindebted microenterprises,
in which they found that the main obstacle to repayment of microloans was
related to the sheer lack of customers and the intense competition for them.
We have much evidence to suggest that exit is also an important downside
of microcredit. Using panel household survey data for 2001–2004, World Bank
researchers (Demirgüç-Kunt, Klapper, and Panos 2007) estimated that around
half of new microenterprises started in 2002 and 2003 did not survive beyond
one year of operation. In several ways, microenterprise exit turned out to be
a seriously negative outcome for the average individual client of an MCI in

Bosnia. First, ample evidence shows that those who failed in a microenterprise
but chose (or were effectively forced) to continue to repay the microloan have
had to divert family income flows into microloan repayment. Very much like
Bangladesh, Bosnia has one of the largest remittance-income flows in the world,
and much of this cash, along with pensions and other social transfers, has been
used simply to repay microloans (Maurer and Pytkowska 2011). Naturally,
diverting such valuable income flows into microloan repayment is unlikely
to raise the living standards of those involved. Second, and even worse, many
individuals are also being forced to liquidate important physical and financial
assets, such as family savings, land, housing, private vehicles, machinery, and
so on. Local media in Bosnia are increasingly reporting that the biggest MCIs
are desperately trying to get rid of the large property portfolios they have built
up as a result of seizing property from their growing number of defaulters.8 The
negative impact on the poor arising from their gradual loss of such important
assets, and its contribution to increasing inequality, cannot be overstated.
The microcredit model thus only appeared to create jobs. In fact, the main
outcome was a largely unproductive process of “job churn” or “turbulence”—an
increase in the rate of microenterprise entry that was almost completely offset
by high levels of displacement and exit, resulting in very little net job creation
(see Nightingale and Coad 2014).9
The Rise of Individual and Household Overindebtedness
Bosnia has not escaped the hugely destructive overindebtedness that has char-
acterized the microcredit sector around the world (Guerin, Labie, and Servet
2015). From the early 2000s onward, the main MCIs began to adopt a “growth
at any cost” strategy. Growth was seen as the best way to generate additional
revenue that could be used to, among other things, grow the MCI and therefore
also to increase management salaries and bonuses. In addition, the conven-
tional wisdom in Bosnia (prior to the collapse in 2009) had long held that the
larger the MCI, the more able its senior managers would be to bargain for a high
personal reward when the MCI was sold or transferred.
The entirely predictable result of these individual motivations, given the
deliberately weak regulations and supine supervisory boards within most MCIs,
was a reckless growth strategy. Accordingly, Bosnia’s MCI clients were very soon
dangerously overindebted. By 2010 around 28 percent of all MCI clients were
found to be “seriously indebted or over-indebted”: about three-fifths found
Table 7.3. Multiple Borrowings in Bosnia
Number of microcredit contracts 1 2 3 4 5+

Percentage of clients 42 26 15 8 9
Source: Maurer and Pytkowska 2011, 2.
themselves in a situation in which their monthly repayment exceeded their

total household disposable income, and the remaining two-fifths were oper-
ating just under that threshold (Maurer and Pytkowska 2011, 4). Perhaps not
surprisingly, the very poorest were found to be most in debt, with the incomes
of those overindebted just over half those of the not overindebted (Maurer and
Pytkowska 2011, 4). And not only were MCI clients ending up in real difficulty;
nonclients, too, ended up suffering if they were among the estimated one hun-
dred thousand individuals in Bosnia who had agreed to guarantee one or more
microloans for extended family and friends. In the Republic of Serbia entity,
for instance, guarantors were forced to hand over nearly KM5 million (around
US$3 million) in 2011 to repay the more than 4,000 microloans (nearly 8 per-
cent of the total microloans outstanding) that were in default—a figure almost
double the amount guarantors had to hand over in 2010 to cover 2,650 micro-
loans in default (Banking Agency for the Republic of Serbia 2012, 54).
Rapidly growing numbers of multiple microloan holders also began to sur-
face. In fact, many individuals in Bosnia took out multiple microloans across
several MCIs, using each new microloan to repay existing microloans and
in the process building up a mountain of personal debt for which important
assets would eventually be forfeited. By the late 2000s, multiple borrowing had
become one of the most serious client problems in Bosnia. Nearly 60 percent of
borrowers had more than one microcredit outstanding, and a full 9 percent had
more than five microcredit contracts outstanding (table 7.3).
The reckless expansion plans of Bosnia’s MCIs have achieved nothing more
than a dramatic rise in individual and household overindebtedness, thrusting
large numbers of Bosnia’s poor into even deeper poverty, fear, and insecurity
than ever before.
The Destruction of Solidarity and Trust
A further damaging impact of the microcredit model in Bosnia is the unethi-

cal Wall Street–style philosophy that emerged in Bosnia’s microcredit sector, a
direct outcome of the deliberately weak regulations and supervisory structures
put into place by the international development community. Just as elsewhere

in the global microcredit industry (Sinclair 2012a), and in a context established
by the main Wall Street financial institutions in the run-up to the meltdown
that took place there in 2008, such a lax regulatory environment was an open
invitation to many of the CEOs of Bosnia’s MCIs to game and abuse the system
as much as they could.
The most obvious indication that things were going wrong was senior man-
agers’ awarding of stunning salaries and bonuses to themselves, as well as the
interest-free loans, share options, and other personal rewards offered to them
for “the fight against poverty.” Not content with these advantages, many of the
CEOs began to strip their own MCIs of assets, gradually appropriating both
the original donor capital and the accumulated surpluses that had been built
up. Bosnia’s microcredit sector fell victim to a hugely damaging wave of what
William Black (2005) has termed “control fraud,” in which a CEO is able to sub-
vert his or her organization by legally (at least initially) appropriating its value
for personal gain.
The evidence for control fraud in Bosnia is compelling (see Bateman, Sinko-
vić, and Škare 2012; Black 2012). First, in spite of repeated claims that that the
microcredit sector is all about assisting Bosnia’s poor to escape their poverty,
the media have consistently reported on the generous financial rewards enjoyed
by the CEOs and senior staff employed at the main MCIs. This group was able
to very quickly, but quietly, place itself among the highest-paid individuals in
Bosnia. The situation peaked in 2011, when it was revealed that the highest-paid
individual in Bosnia in July of the previous year had been the executive direc-
tor of the Banja Luka–based MCI Mikrofin; in that one month, this director
received a taxable monthly income (salary plus bonus payment) of KM220,249
(around US$150,000).10 The end result was inevitable. Many ordinary Bosni-
ans began to feel that they had not been assisted to better their lives, as was
promised, but had effectively been exploited by the microcredit industry. Lead-
ing microcredit auditor and longtime supporter of microcredit Alem Mujković
(2010, 6) was forced to concede that the Bosnian public increasingly saw in the
microcredit sector “exploiters . . . charging exorbitant interest rates on loans to
poor populations.”
Second, as even World Bank advisers predicted would be the case (though
they apparently did nothing about it),11 control fraud was evident in the way
that senior MCI managers in Bosnia were able to loot accumulated assets and
value. The aforementioned MCI, Mikrofin, is another good example. Consider
Mikrofin Invest, which was established by Mikrofin managers with a capital

investment of KM400,000 (around US$230,000). Of the cash investment,
KM140,000 came directly from Mikrofin’s own financial resources, while the
remainder (KM260,000) was supplied by four of Mikrofin’s senior managers
acting in a private capacity and using interest-free internal loans to do so.12
Thus, Mikrofin the MCI holds only 40 percent of the equity in this new venture;
the other 60 percent is owned by the four directors of Mikrofin, two of whom
awarded themselves each a 17.5 percent personal share, while the remaining two
directors were given a 5 percent and 10 percent personal shareholding, respec-
tively (with the other 10 percent distributed among a number of employees and
associates). Mikrofin Invest is then owned and controlled by the directors of
Mikrofin, who are acting as private individuals, not as officers of Mikrofin, and
yet drew the capital for Mikrofin Invest from Mikrofin’s accumulated resources.
There is no better way for senior managers to strip their own organization of
assets than through such an arrangement.
The unethical arrangements perfected by Mikrofin were effectively blessed
by the international development community, above all by the EBRD, which
continues to very heavily engage with Mikrofin and its senior staff.13 The EBRD’s
tolerance of Mikrofin’s manifestly unethical behavior sent a powerful signal to
all the other MCIs in Bosnia: such practices would not only be tolerated, but
they would also be rewarded with additional funding and invitations into the
inner circles of the global microcredit sector.
The first instance of an adverse effect on the microcredit sector was not
long in coming and involved Synergia, not coincidentally the other major MCI
operating alongside Mikrofin in the extensively deregulated Republic of Ser-
bia entity in Bosnia. Like Mikrofin, Synergia was effectively given the freedom
to push operational boundaries as much as it liked, and it grew very rapidly
indeed, generously rewarded its senior staff, and engaged in business activities
that were suspect at best. However, the existence of very few checks and bal-
ances meant that nothing could stop the senior managers from engaging in a
major asset-stripping activity in order to appropriate even more of the MCI’s
cash flow. When they were finally caught in late 2011, after the Republic of Ser-
bia’s financial authorities ignored numerous warnings for fear of undermining
the idea of microcredit itself, Synergia was forcibly shut down.14 A little later,
Sarajevo-based LOK was also found by financial authorities to have been oper-
ating in a similar way, and as of this writing its future remains in doubt.15
Finally, nothing could be done to stop the MCI Prizma from perpetrating
one of the most brazen control frauds so far. Once one of the largest and most
respected of the MCIs in all of Bosnia, as well as in Europe,16 Prizma was
known for generously rewarding its high-profile general director, Dr. Kenan
Crnkić, along with its largely supine supervisory board.17 This need for extreme
financial reward was enough of an incentive for the drafting of a plan that was
designed to generate thousands of new clients, plus revenue, and thereby raise
even further the level of financial reward accruing to the CEO and some other
senior staff. At a time when significant individual overindebtedness and satu-
rated local markets already existed in Bosnia, in addition to the overindebted-
ness of Prizma’s own client base, this plan to massively expand the client base
was almost the textbook definition of reckless lending. However, Prizma suc-
ceeded in growing its client base from forty-five thousand borrowers in late
2011 to around sixty-five thousand less than a year later—that is, a nearly
50 percent increase in clients. The huge risks involved in such a plan were simply
discounted.
Inevitably, this rapid expansion attracted a high percentage of completely
unsuitable clients. The various credit bureaus operating in Bosnia could have
predicted this outcome, of course, but they were simply bypassed by Prizma
loan officers in their haste to meet aggressive expansion targets and thereby trig-
ger their own bonus payments. And with an increase in cash flow in the form
of rising interest payments and fees, the general director and senior managers
had both the justification and the funds to provide for generous salary hikes
and bonus windfalls for themselves. However, with so many new borrowers to
deal with, a large number of whom soon found themselves unable to repay, and
with repayment problems already critical with regard to many of its existing
borrowers, Prizma hit the wall. It thereafter entered into a steep decline, and
by mid-2014 it had only eighteen thousand borrowers left. By the end of 2014,
Prizma’s standard thirty-day portfolio-at-risk (PAR30) figure was approaching
a staggering 60 percent, and it had racked up a total loss of KM45.34 million
(around US$25.5 million) for the year.18 After its repeated but weak admoni-
tions to Prizma to curb its reckless lending went unheeded, and after unofficial
warnings about other dangerous habits continued to be ignored,19 the Bosnian
government finally had no other option but to act. It revoked Prizma’s operat-
ing license in late 2014, then reinstated the license after an appeal.20 General
Director Crnkić, the principal architect of the expansion plan, ignominiously
departed from his position and moved into a senior job in regional govern-
ment.21 However, further serious losses (KM14 million, US$8 million) followed
in the first three months of 2015, and Prizma’s PAR30 rose to an incredible
77 percent.22 In the summer of 2015 Prizma was forcibly shut down by the Bos-
nian government.
The spectacular collapse of Prizma is but the most recent evidence of how
the extensive deregulation, desupervision, and liberalization measures that
were explicitly designed to frame the operation of Bosnia’s market-driven
microcredit sector have precipitated an outbreak of control fraud.23 By almost
all accounts, this development has further damaged the already thin reserves
of cooperation, trust, solidarity, and reciprocity that could have helped Bosnia’s
already hard-pressed local communities to function more effectively in the
postwar environment.
Gender Disempowerment
Women’s empowerment was from a very early stage served up as one of the
principal benefits of the microcredit model in Bosnia (e.g., Cutura 2010).
Increasingly, however, women’s empowerment in Bosnia, as is the case glob-
ally (see Maclean, chapter 14, this volume), is recognized to be no more than a
well-crafted myth.
In Bosnia we have seen one of the most vivid demonstrations of the intense
pressure put upon women in poverty to resolve their situation through an infor-
mal microenterprise. Though the data are patchy, the failure rate for women-
owned microenterprises in Bosnia seems likely to be even higher than that for
male-owned microenterprises (Goronja 2011). For a number of reasons related
to preexisting skills and a lack of business experience and capital, Bosnia’s
women were effectively forced to enter into the least sophisticated business
areas, which are also those business areas with no real growth prospects. Report-
ing on the many highly skilled Bosnian women who engaged in the most primi-
tive of microenterprise activities simply in order to survive—petty cross-border
trading, street selling, primitive agriculture (e.g., keeping a cow in the back gar-
den), running a basement shop, and so on—Vanessa Pupavac (2005) found that
resentment toward the microcredit model was understandably high. Many Bos-
nian women saw microcredit as representing nothing less than a forcible return
to the disadvantaged gender position they held before the Second World War.
One concrete case more than adequately highlights this disempowerment
trajectory: that of the one MCI famously established to focus exclusively on
Bosnia’s women in poverty, Žene za Žene (Women for Women). Founded by
US citizen and high-profile social entrepreneur Zainab Saldi, Žene za Žene was
founded on the belief that Bosnia’s women in poverty could quite easily escape
their plight by engaging in the very simplest of business activities. Žene za Žene
began to attract financial support from around the world and was very soon
helping thousands of Bosnia’s poorest women to set up informal microenter-
prises of their own. But because so many of its clients were engaged in the very
simplest of low-capital “business” activities, for which there was very little sus-
tainable local demand (selling souvenirs, shuttle trading, washing and repair-
ing clothes, etc.), Žene za Žene soon found itself having to deal with far more
failed clients than successful ones. With worsening global conditions (including
reduced remittances) after 2008 negatively impacting local demand in Bosnia,
Žene za Žene’s default rate began to skyrocket (Goronja 2011). The endgame
began when its clients began to default en masse. Žene za Žene then had to drag
several thousand of them through the Bosnian court system so that the courts
could formally confirm that they could not repay their microloans.24
Notwithstanding the fact that a handful of its clients did well (and were soon
prominently displayed in all its publicity materials) the vast majority of the
clients of Žene za Žene experienced business failure, serious overindebtedness,
a court appearance, and a significant loss of income and wealth—an alienat-
ing and humiliating life episode. Inevitably, the end had to come. Due to its
large and growing number of defaulting women clients, but without wanting
to antagonize the international donor community and the many global celeb-
rities that had supported its operations from the outset, the Federation Bank-
ing Agency gently pushed Žene za Žene to agree to be taken over by LOK in
mid-October 2012, and it effectively ceased to exist.25 In its short life, Žene za
Žene—an MCI set up only to support women in poverty—was responsible for
unwittingly bringing about one of the most disempowering gender-specific epi-
sodes uncovered so far in Bosnia’s postconflict period.
Deindustrialization, Informalization, and Primitivization
Perhaps the most destructive long-term impact of microcredit in Bosnia, how-

ever, has been its negative influence on the structure and efficiency of the Bos-
nian economy. Studies in institutional economics and entrepreneurship theory
have shown that creative, technically innovative ideas and institutions are the
key to economic development (Schumpeter 1987[1942]; Baumol, Litan, and
Schramm 2007). Novel, growth-oriented, export-driven, new technology–based
and (so) productivity-raising SMEs play a particularly important role (Bateman

2000). This dynamic is especially important in developing and transition coun-
tries, which need to master key technologies, better understand state-of-the-art
industrial products and processes, develop at least some innovative capabili-
ties in domestic microenterprises and SMEs, and establish a tissue of proactive
development- focused institutions and organizations (see UNCTAD 2003;
Amsden 2007; Chang 2007). Crucially, the establishment of these productivity-
generating trajectories requires a financial system that is willing and able to
channel a significant volume of resources (savings, remittances, government
investments, donor funds, etc.) in the appropriate direction, as opposed to
financing other far less productive and largely unsustainable applications, such
as informal microenterprises and self-employment ventures.
Thanks to the growing presence of the microcredit sector in Bosnia and its
ability to absorb the financial resources circulating within the economy and to
attract foreign capital for on-lending, the Bosnian economy since the mid-1990s
has been progressively deindustrialized, informalized, and primitivized. That is,
at the same time that most developing countries have been desperately trying to
move up the technological and industrial ladder, the previously highly indus-
trialized, technically sophisticated, research and development driven, interna-
tionally connected Bosnian industrial structure has effectively been allowed to
deteriorate. The lack of a productive SME sector in Bosnia combined with a
massive expansion of very low-productivity microenterprises and forms of self-
employment reflect the microcredit-driven “adverse selection” process at work
in Bosnia since the mid-1990s.
The massive increase in microcredit lending activity from the early 2000s
onward has resulted in a majority of informal microenterprises that do not,
or did not, operate at or close to minimum efficient scale, which has helped to
dramatically reduce the efficiency of Bosnia’s economic structure. Furthermore,
after an initial wish to do otherwise, the microcredit sector has almost entirely
engaged in funding informal business activities.26 One of the traditional bene-
fits of formalization—better access to credit—simply has no meaning in Bosnia
because microfinance is available to any individual or organization regardless
of operating methodology or legal structure. Thus, the informal sector in post-
war Bosnia began to expand as a percentage of total employment, rising, for
example, from an already high 37 percent in 2001 to just over 42 percent in 2004
(Tiongson and Yemtsov 2008, 4). This rapid rise in the informal economy was
seen as a negative development, even by the head of the World Bank in Bosnia.27
Finally, because of high interest rates and short repayment periods, the idea
of funding a(ny) business that might want to work on the basis of some tech-
nology or innovation is completely fanciful. The vast majority of microenter-
prises supported in Bosnia have been no- or low-technology units, principally
quick-turnover, petty trade–based operations.
Today’s deep-seated problems arising from microcredit were first iden-
tified as early as 1999, when the EU/BiH Consultative Task Force, a policy-
coordinating body established in June 1998 by the Council of the European
Union, convened a working group to develop an urgent policy response to the
worsening economic situation in Bosnia. This new body was particularly wor-
ried about the rapid decline of the industrial sector and its associated institu-
tional fabric, as well as the almost complete lack of new private, formal sector,
industrial SMEs. But virtually nothing happened other than the establishment
of a few minor SME credit lines, which were mainly taken up by companies
importing capital and consumer goods into Bosnia.
At the start of the new millennium, the Bosnian economy was feared to be
rapidly “Africanizing” (Africanizacija), which might be defined as an economy’s
descent into a situation in which the enterprise sector is overwhelmingly com-
posed of enterprises that are informal, micro, based on petty trade, temporary,
and isolated (Bateman 2010, vii). In its annual human development survey of
Bosnia, for example, the UNDP (2002) correctly reported on the slim chances
of a sustainable bottom-up recovery taking place in Bosnia, thanks to the pro-
grammed domination of the informal microenterprise and self-employment
sector in the emerging economic structure. The UNDP’s (2002, 38) conclusion
was a chilling one: Bosnia’s population had effectively been “condemned to reli-
ance on a grey, trade-based, unsustainable economy rather than a production-
based one.” A little later the independent European Stability Initiative (ESI
2004) issued an even more alarming report focused on the growing number
of negative local economic development indicators, all of which were suggest-
ing to them that the Bosnian economy was actually not developing from the
bottom up, but going backward. The US government–financed and generally
neoliberal-oriented Center for International Private Enterprise (CIPE) was
forced to concur with the ESI’s proposition that economic policy in Bosnia had
effectively undermined development, arguing in its own words that
Bosnia [is] going through a process of de-industrialisation on a devastating

scale. The new private sector is dominated by microenterprises in trade and
basic services, generating very little employment. Bosnia seems to be devel-

oping backwards: where once it manufactured jet aircraft, it now exports
aluminium; where once it exported furniture and finished wood products,
it now sells only raw timber. Outside of the larger cities, many Bosnians
are abandoning the towns and returning to the land their families left a
generation ago. Forced out of the formal economy, they scrape together a
living through some combination of casual labour, informal trade and sub-
sistence agriculture. (CIPE 2004, 2)
This and other similarly alarming reports that were to emerge in the follow-
ing years were all ignored for a perfectly clear reason: the resulting policy advice
would have threatened to expose the entirely false narrative built up around
Bosnia’s supposedly developmental microcredit model. The hugely damaging
deindustrialization, primitivization, and informalization of the Bosnian econ-
omy was thus willfully allowed to continue.
Conclusion
We have argued that in terms of its declared mission in Bosnia to promote

bottom-up development, employment, poverty reduction, women’s empower-
ment, and social and economic inclusion in postwar Bosnia (World Bank
1997), the market-driven microcredit model has failed miserably: it has, in fact,
negated all progress in these important directions. The microcredit sector has
helped to conjure into existence a highly adverse “anti-development” trajec-
tory, one that has trapped the Bosnian economy in a situation of permanent
underdevelopment and backwardness. As in the United States (Dymski 2009),
the much-celebrated arrival of the microcredit sector in postwar Bosnia can be
viewed as the beginning of that country’s subprime-style disaster, an outcome
that has spectacularly benefitted a tiny elite working within and around the
microcredit sector while simultaneously destroying many of the most impor-
tant pillars of Bosnia’s postconflict economy, polity, and society.
Notes
1. Significant grant funding from the international development community pro-

vided the initial capitalization for virtually every MCI in Bosnia (Agencija za
Bankarstvo Federacija BiH 2011, 25).
2. Of external funding, 90 percent was sourced from international financial insti-

tutions, with only 10 percent from local sources, mainly commercial banks. See
Pytkowska, Koryński, and Mach 2009, 61.
3. Many of the supposed successes of microfinance in Bosnia were simply opera-

tional milestones, such as the number of clients served, the volume of micro-
finance pumped out in a certain time period, and so on.
4. The World Bank–commissioned impact evaluation of its LIP by Dunn (2005)

was deliberately structured in such a way as to guarantee a positive assessment.
For example, the evaluation inexplicably avoids any consideration of job and
income displacement and exit effects.
5. Between 2006 and mid-2012, for example, when the extent of microcredit satu-
ration and individual overindebtedness had become abundantly clear, the EBRD
provided an additional €70 million to MCIs in Bosnia for on-lending (Bateman,
Sinković, and Škare 2012, 9).
6. See http://www.intellinews.com/bosnia-s-jobless-rate-flattens-at-46-1-at-end
-march-2013-employment-agency-6765/?source=bosnia-and-herzegovina.
7. Not only was most of the microcredit taken out used to purchase imported
consumer goods rather than locally produced goods (IMF 2010), but it was also
increasingly used simply to repay existing microloans, a Ponzi-style dynamic
that inevitably presages disaster.
8. A glance at any Bosnian newspaper or Internet site reveals that the MCIs
and larger banks are among the main sellers of housing in Bosnia today. For
example, see http://www.javnaprodaja.ba/kategorija/221/kuće?seek=7.
9. However, this did not stop those desperately seeking a positive outcome from
microcredit, many of whom assigned great importance to the process of new
entry and, specifically, higher microenterprise formation rates while inexpli-
cably refusing to discuss the counterpart issues of displacement and exit. Per-
haps the most notable example of this unethical tendency was the high-profile
EBRD-sponsored impact evaluation of Bosnia’s microcredit sector. The impact
evaluation made great play of the increase in the rate of new business formation,
seeing it as a sign of positive impact, but collected no data nor analyzed dis-
placement or exit impacts (see Augsberg et al. 2015). Unfortunately, this was just
one of a whole series of deliberate misrepresentations in an evaluation exercise
that was commissioned and funded by the EBRD and headed by the EBRD’s
own deputy director of research at the time. The real aim of the evaluation
exercise was to put as positive a spin as possible on Bosnia’s failing microcredit
sector and to provide some sort of ex post facto justification for the EBRD’s own
decisive contribution in giving life to it. See Bateman 2013a.
10. See Večernje novosti 2011.
11. As early as 2008, World Bank legal adviser Lauer (2008) warned that the Bos-
nian microcredit sector would likely be marked by asset stripping. Lauer’s
prescient warnings went unheeded, however, and the international development
community ensured that the legislation and regulatory structures governing
microcredit in Bosnia were deliberately kept as minimal—as “light touch”—as
possible.
12. The audited accounts for Mikrofin show that the category “Head Office—loans
to employees” contains a very considerable amount. In 2009, for instance, the
value of loans to head office employees amounted to KM560,000 (around
US$330,000), a figure just under 10 percent of the total lending of one of the
smaller branches of Mikrofin (e.g., Mostar or Trebinje). See “Microcredit Com-
pany ‘MIKROFIN D.O.O., BANJA LUKA’ Unconsolidated Financial Statements
for the Year Ended December 31, 2010 and Independent Auditors’ Report,” 18
(accounts available on the Mix Market website, http://www.themix.org/mix
market).
13. For instance, in 2011 the president of the management board of Mikrofin,
Mr. Aleksandar Kremenović, was one of the high-profile invited guests at the
EBRD’s prestigious annual meeting held in Astana, Kazakhstan.
14. See Glas srpske 2012.
15. In January 2013 the financial fraud service in Bosnia found that LOK’s senior
managers were involved in a money-laundering scheme that siphoned off
around €4 million of LOK’s revenue into a set of private companies owned by
them. See http://www.profitiraj.ba/20110926272/mikrokreditne-organizacije
.php. With legal efforts stepping up, the CEO of LOK—Nusret Čaušević—was
found dead after taking his own life in May 2015. See http://www.oslobodjenje
.ba/crna-hronika/nusret-causevic-pronadjen-mrtav.
16. See Prizma n.d.
17. As with the remuneration to senior management, remuneration for board mem-
bers at Prizma was very generous and, in fact, the highest in all of the MCIs
operating in Bosnia. See Agencija za Bankarstvo Federacije BiH 2015a, 46.
18. See Agencija za Bankarstvo Federacije BiH 2015b, 42.
19. In a final descent into tragicomedy, an academic exercise purporting to dem-

onstrate just how much Prizma was desperately concerned about the poor
and doing its utmost to help them was published only months before Prizma’s
manifestly unethical and risky behavior forced the Bosnian government to shut
it down (Schreiner et al. 2014).
20. See Mix Market 2014.
21. Crnkić is the author of a best-selling book in Bosnia entitled the The Seven
Secrets to Success, which outlines how managers can guarantee success in their
organizations by following seven simple tips. See http://pravidojaminfo.blog
spot.hr/2013/10/7-secrets-of-success-review.html.
22. See Agencija za Bankarstvo Federacija BiH 2015a, 40.
23. The slightly more powerful regulations in the federation entity compared to the
Republic of Serbia entity in Bosnia nevertheless still raise the hackles of those
CEOs operating in the federation: they chafe at the spectacular financial rewards
enjoyed by their counterparts in the Republic of Serbia, which they cannot (yet)
claim. The latest plea in this direction was made by Dzavid Sejfovic, the general
manager of LIDER, one of the largest remaining MCIs in the Bosnian Federa-
tion. See Global Communities 2015.
24. This was a standard procedure required to confirm to the Bosnian tax authori-
ties that these loans had been genuinely written off and were not microloans
that were given out by officials at Žene za Žene to family and friends and that
were pre-agreed to default.
25. Given LOK’s parlous state (see note 15), this may prove to be a case of out of the
frying pan and into the fire.
26. The microfinance sector in Bosnia began with a commitment to support only
registered microenterprises, based on an understanding that an officially sanc-
tioned expansion of the informal sector would be a negative development for
the country and so had to be avoided. But when it became clear to the MCIs that
the overwhelming majority of their potential clients were planning to operate
informally, or were already doing so, financial self-sufficiency imperatives dic-
tated that this requirement had to be quietly dropped (see Goronja 1999).
27. In early 2006, the then head of the World Bank in Bosnia, Dirk Reinermann,
publicly expressed his deep concern over the size of the “large and growing
informal sector,” saying that it represented one of the “key challenges in Bosnia
and Herzegovina” (World Bank 2006). Might one interpret this statement as a
mea culpa on behalf of the World Bank, the main driving force behind the rise
of the informal sector?
Chapter Eight
From Tigers to Cats?

The Rise and Crisis of Microfinance in Rural India
Marcus Taylor
Before the crisis MFIs used to be tigers. After the crisis, they have become cats.
Earlier we used to wait for them but now they wait for us. Earlier they will not
accept a penny less, now they accept whatever we give, whenever we give.
—Discussion group respondent, Andhra Pradesh, 2011
Introduction
The striking imagery of microfinance institutions (MFIs) reduced from tigers

to cats demonstrates the intensity of the crisis that struck commercial micro-
finance in India in 2010. The depth of this crisis may appear surprising given
that immediately prior to its outbreak India had been seen as a boom market for
commercially operated microfinance. Backed by state support under the rubric
of “financial inclusion,” investment flowed into the sector from both Indian
banks and international financial institutions. As a result, MFIs dramatically
increased their loan portfolios, rising precipitously from US$252 million to
US$3.8 billion between 2005 and 2010 (Srinivasan 2012). Although geographi-
cally concentrated—almost half this expansion occurred in the southern state
of Andhra Pradesh alone—the pace of growth was nonetheless argued to rep-
resent a necessary scaling up of financial inclusion across rural India. As the
epicenter for this growth, Andhra Pradesh appeared to set the direction and
pace for the rest of India to follow.
Driven forward by a consolidated “big six” MFIs and facilitated by state agen-
cies keen to promote credit availability as a means of livelihood diversification,
this boom nonetheless turned to bust in 2010. Following the well-publicized sui-
cides of a number of borrowers who encountered aggressive collection tactics
147
148 Marcus Taylor
in Andhra Pradesh, the state government withdrew its support for commercial
microfinance and placed a moratorium on the collection of loan repayments to
MFIs. This act precipitated a vicious cycle of defaulting clients, a loss of confi-
dence in the industry, a downgrading of credit ratings for MFIs, and a liquidity
crisis as banks refused to extend further credit to the sector. With Andhra
Pradesh serving as the focal point for MFI lending across India, the crisis had
national reverberations. As the liquidity crunch continued, many smaller MFIs
collapsed and larger ones faced the ominous prospect of loan write-offs and a
paucity of means to meet their own credit needs. The tigers, it seemed, had not
only been declawed but were in danger of extinction. It has subsequently taken
a national-level reaffirmation of governmental support for microfinance as an
industry to forestall its generalized collapse.
What led to this dramatic tale of boom to bust and then to an uncertain sta-
bilization of commercial microfinance in India? For many, the crisis in Andhra
Pradesh was symptomatic of a failed regulatory environment that was unable
to curb the “irrational exuberance” of a microfinance industry in which CEOs
enjoyed spectacularly high salaries and bonuses and outside investors reaped
quick profits by infusing credit into the marginal corners of agrarian India.
Observers have frequently focused on the failings of “self-regulating” MFIs
that pursued a course of systematic overlending followed by ruthless collection
and have identified the need for a suitable regulatory framework that can tame
such practices. Elisabeth Rhyne (2011), the managing director of the Center
for Financial Inclusion at Accion International, puts this finding in a suitably
direct manner when she claims, “Like sex, microfinance can be safe if practiced
responsibly. Recently, however, we’ve seen that not all participants in the micro-
finance industry are practicing safe microfinance . . . one need look no farther
than Andhra Pradesh.”
Rhyne’s point is well taken. Without doubt, the MFIs in Andhra Pradesh
operated within a regulatory vacuum that facilitated some extremely poor prac-
tices. However, to focus solely on faulty regulatory frameworks is to miss two
other factors. First, this position takes at face value the rhetoric of financial
inclusion, which argues that the absence of credit is a significant cause of both
vulnerability and poverty among marginal households. Commercially operated
microfinance that can rapidly scale up its activities emerges as the necessary
solution (Taylor 2012; Soederberg 2013; Mader 2015). While compelling, this
narrative obscures the complexity of localized debt relations in rural India. It
fails to ask at what point the extension of credit can become part of the problem
From Tigers to Cats? 149
rather than its cure. Given that most households in rural India already juggle
high debt levels, access to credit might simply increase the prevalence of debt
traps.
At the same time, the financial inclusion narrative overlooks how, despite
their self-presentation as vehicles of inclusion and empowerment, profit-
orientated MFIs must accommodate their lending practices to a logic of accu-
mulation and commercial expansion. Commercial microfinance is premised on
profitability and—as MFIs expand—the need to meet shareholder expectations.
With a business model that requires minimizing transaction costs by ensuring
low default rates, MFIs maintain a strongly disciplinary set of relations with
their clients to enforce exceptionally high levels of repayment. In short, MFIs
are compelled to act as tigers and the degree to which stronger regulation can
tame such tendencies is unclear. I explore these factors below while mapping
out the broad contours of the boom, bust, and partial recovery of commercial
microfinance in India.
The Anatomy of Microfinance Expansion in India
While microfinance may well be a relatively new entrant into rural India,
relationships of credit and debt are not. The colonial administrator Malcolm
Darling (1925) once quipped that the Indian peasant is born in debt, lives in
debt, and dies in debt. Darling’s observation captured what many political
economists have noted: in rural India debt relations are central to the fabric
of social life and hierarchy. Thus, agrarian environments in South Asia have
historically been “financialized” in the sense that relations of credit and debt
have been interwoven into the fabric of rural social relations from the colonial
period onward. In such contexts, both the practices of debt relations and the
social meaning of debt are highly situated: they are specific to particular locali-
ties that manifest distinct power relations between rural social agents (Guérin
et al. 2011). Debt relations operate along two axes. On the one hand, relations
of credit and debt can reinforce engrained relations of power and social hierar-
chies by creating an ongoing form of surplus extraction between, for example,
landowners and tenants. Simultaneously, credit can also transform social rela-
tions by helping households to overcome production or consumption barriers
in the present, potentially at the cost of accentuating risks in the future (Taylor
2012, 2013). Relationships of credit and debt therefore display a striking duality.
Whereas credit appears as a lifeline by allowing households to meet present
150 Marcus Taylor
expenditures, the accumulation of debt can emerge as a crushing burden. In

rural India, the dividing line between these two facets of credit and debt rela-
tions can be very thin, and finding new and improved ways to deliver credit to
the poor and restrict exploitative debt practices has repeatedly been a key goal
of rural development strategies.
In the 1970s, these concerns were incorporated into national policy projec-
tions. Directing subsidized credit toward rural India was seen as an important
lever of agrarian modernization and one that needed to be targeted at rural
smallholders to facilitate their shift to commercial cropping and usage of new
agricultural technologies (Ramachandran and Swaminathan 2002; Harriss-
White and Colatei 2004). An Integrated Rural Development Programme
(IRDP) was established for such purposes. Despite its disbursal of millions of
rupees of subsidized credit into rural areas through commercial banks, results
were mixed: while credit was extended to rural smallholders and rural bank-
ing coverage improved, considerable resources with relatively low repayment
levels were leaked to nontarget groups (Shah, Rao, and Shankar 2007). By the
1990s, enthusiasm for such “social and development banking” programs had
largely dried up, in part owing to the large costs associated with the initiative.
Within the context of a broader neoliberal recomposition of the Indian politi-
cal economy, the Reserve Bank of India (RBI) brought the IRDP to a close and
announced a new operating logic for rural credit provision. Past experience,
its leaders argued, “shows that dollops of sympathy in the form of subsidy and
reduced rate of interest have not helped matters much.” Instead, they argued,
“micro-credit has to be commercialized where all patrons—micro-finance
providers, intermediaries, NGOs, facilitators and the ultimate clients—must
get compensated appropriately” (Chavan and Ramakumar 2005, 149). This
announcement heralded the beginning of a dramatic expansion of micro-
finance within rural India.
The scaling up of microfinance not only reflected a shift in political senti-
ments within India but was also shaped by a broader mandate operating at an
international level and strongly promoted by the World Bank’s Consultative
Group to Assist the Poor (CGAP). In this perspective, a failure to access formal
financial services undermines the ability of households to engage in produc-
tive activities through an informal microenterprise while also restricting their
capacity to manage external shocks by accessing credit in times of need. On
both counts, the condition of financial exclusion is argued to reproduce poverty
and vulnerability on a wide scale by restricting households’ inclusion within
the economic mainstream. This argument leads to the conclusion that finding
ways to direct financial services to the poor should be a priority of antipoverty
strategies. The latter, however, is perceived to be attainable only if microfinance
operates according to a commercial logic of financial sustainability that allows
market forces to dictate the pace and scale of growth. Subsidized, small-scale
microcredit ventures run by nongovernmental organizations (NGOs) are seen
as inadequate to meet the scale of the need for financial extension. Thus, micro-
finance was argued to require a commercial logic that would allow providers to
generate sufficient revenue to scale up their activities. The private sector, in this
argument, could become the motor of financial inclusion on a global scale, suit-
ably combining profit making with poverty alleviation (Bateman 2010; Mader
2015).
In India, the primary vehicle for this new policy of rural credit extension
was not initially commercial MFIs. Instead, a number of state-driven programs
operating within rural India sought to establish self-help groups (SHGs) and
link them directly to the formal banking sector. SHGs are composed of around
ten to fifteen women who, under the tutelage of NGOs and the state, form a
mutual savings group. Having demonstrated its collective thrift over a period
of months, an SHG can subsequently apply to banks for loans at relatively sub-
sidized rates under a state-sponsored program. Linking SHGs to banks in this
fashion was a way of promoting financial inclusion in which the joint-liability
function of the group could overcome the significant transactions costs that
frustrated formal bank lending to the rural poor. After receiving a bank loan,
an SHG would then set its own interest rate for internal lending to individual
members. Concurrently, the members would take care of all monitoring and
repayment procedures as a collective.
By socializing risk, the group could address a number of problems from
the perspective of finance capital (Kalpana 2005; Rao 2005). First, the group
screened participants because women were assumed to select members most
likely to be disciplined financial agents. Second, group dynamics were seen
to compel financial discipline because of fear of the social stigma and shame
attached to those who defaulted. Third, the joint-liability model ensured that
the group members themselves had a keen interest in self-policing and enforc-
ing repayment. For institutions such as the RBI, this form of credit provision
was intended to ensure fiscal responsibility and therefore meet the paramount
goal of a self-sustaining microfinance program that did not depend on subsidies
or large overheads. That the imposition of financial discipline through collective
152 Marcus Taylor
self-selection and policing might conflict with the goals of solidarity among
women as a means of their empowerment was not acknowledged. Nor was the
impact upon self-selection in SHGs, in which women tended to recruit those
least likely to default from within established social networks, thereby exclud-
ing the poor and retrenching caste-based differentiation (Rao 2005). Indeed, a
number of analysts have studied how SHGs reflected complex power relations in
both their internal makeup, their operational hierarchies, and their relationship
to NGOs and governmental agencies (Jakimow 2009; Pattenden 2010). Rural
communities themselves well understood the purpose of SHGs as a medium of
populist linkages between the political establishment and the rural sphere. Only
25 percent of SHGs actually functioned as a thrift group that would become
a microloan recipient, and these tended to be SHGs formed by the relatively
more affluent groups within villages rather than the extremely poor (Mooij
2002; Pattenden 2010). For the others, the benefit of forming SHGs tended to
be access to welfare services that were sourced through the SHG system.
The expansion of SHGs and their linking into the formal banking system
proceeded most rapidly in southern India, and Andhra Pradesh in particu-
lar, where this process was driven by a populist state government that sought
a means to bypass established mechanisms of rural political control. By the
early 2000s, slightly over 50 percent of all SHGs in India—incorporating
around eighty thousand women—were located in Andhra Pradesh alone.
These received 52 percent of total loan disbursements from the government-
sponsored linkage program (Rao 2005). At the same time as this scaling up of
microcredit was occurring, however, the state was scaling down other forms
of rural finance. S. L. Shetty (2009, 64) has detailed how a number of finan-
cial sector reforms in the early 1990s caused a notable retreat of public lending
within rural regions. Such downsizing led to the stagnation of rural banking
inclusiveness—including a decline in the spread of branch banking in rural
and historically underbanked regions, credit-deposit ratios of these regions,
and credit delivery for agriculture, small-scale industries, small borrowers, and
other priority areas. In this context, the rollout of microfinance was part of
a fundamental recalibration of rural lending, much of which pivoted upon a
broader restructuring of agrarian social relations through commercialization,
liberalization, and a squeeze upon smallholder farming (Taylor 2011, 2013).
The Rise of MFIs
While the SHG program extended credit into rural areas of southern India, other
actors saw an opportunity to advance lending beyond such constraints. These
initiatives tended not to occur in the areas of greatest “financial exclusion” but,
on the contrary, where the SHG program had gone furthest because the SHG
program provided an institutional foundation for commercial microfinance. In
Andhra Pradesh, for example, a number of NGOs began transforming them-
selves into nonbanking financial companies (NBFCs) that commodified the
debt portfolios of SHGs and used the prospective revenue stream as collateral
to attract new investment. In this way, NBFCs began to act as direct financial
intermediaries by borrowing money from commercial banks—and, later, from
private venture capital funds and other financial institutions—and lending
to the very SHGs that they had been integral in establishing. In an increasing
number of cases, in order to circumvent the legal requirement that SHGs have
a small down payment in the form of thrift savings, the NGO arm of the com-
pany would provide a grant that would be immediately reinvested by the group
in the NBFC to facilitate credit disbursement (Nair 2010; Sriram 2010a). This
process stimulated the dramatic rise of MFIs in Andhra Pradesh specifically and
in India more generally (table 8.1).
This boom of MFI lending between 2005 and 2010 was driven primarily by
inflows of financing from the banking sector. Both public and private banks
in India are compelled by national legislation to direct a substantial segment
of their annual lending toward areas designated as “priority sectors” in order
to promote wider and more inclusive forms of banking. The requirement is
Table 8.1. Increase in Microfinance Client Outreach, India,

2006 –2010
Millions of Borrowers with

Outstanding Accounts
Segment 2007 2008 2009 2010
Banking System (SHGs) 38.02 47.1 54.0 59.6

MFIs 10.04 14.1 22.6 26.7
Total 48.06 61.2 76.6 86.3
Total, Adjusted for Overlap 44.97 56.0 70.0 71.0
Source: Srinivasan 2010, 77.

154 Marcus Taylor
supposed to force banks to lend in areas that they might otherwise avoid owing
to lower rates of return or higher degrees of risk. Areas specified under pri-
ority sector change according to political priorities but presently include agri-
cultural lending, microenterprises, urban housing, self-help group financing,
and microfinance. Domestic and foreign banks that have more than twenty
branches nationwide must direct 40 percent of their lending into priority sec-
tors. For many commercial banks, the MFIs provide a useful intermediary to
help them fulfill priority-sector lending requirements. By making mass loans to
MFIs, commercial banks are relieved of the risks of lending directly to SHGs—
something they have been cautious about doing despite the SHG-bank linkage
program. Consequently, new MFIs such as SKS, Basix, and Spandana engage in
a form of arbitrage by borrowing from banks at interest rates of 11 to 15 percent
and charging interest rates of between 24 and 30 percent to clients, plus fees for
loans extended. At the same time, the MFIs, operating as for-profit companies,
systematically seek external investors as shareholders, therein marginalizing the
stakes of borrowers within the company, consolidating the commercial nature
of MFIs, and opening the route to considerable self-enrichment for directors
(Sriram 2010a, 2010b).
This expansion of commercial microfinance within Andhra Pradesh created
a new logic of competitive rural credit provision. For-profit MFIs needed to
build up their base of borrowing SHGs in order to pay back bank loans, expand
lending, and turn a profit for shareholders. This process introduced an element
of competition for clients that had previously been absent. MFIs no longer sat
back and waited for the “financially excluded” to come to them. Rather, MFI
workers were rewarded for proactively expanding the client base and subse-
quently ensuring high repayment rates, which led to a number of problematic
practices.
First, the clients of choice were not new borrowers but existing SHGs that
already had the institutional framework and disciplinary culture to ensure
group liability. While some of these groups could be found in the surplus of
SHGs established under the state’s SHG program that were not linked to bank
credit, many MFIs looked to poach SHGs from the existing program or—as
became clear in the crisis—simply lend to groups or individuals that already
had financing. In this cauldron of competitive lending, the countryside became
saturated with credit. By 2010 a staggering 23.55 million SHG and MFI clients
could be found within a state with a total of sixteen million rural households,
suggesting considerable overlap of lending portfolios (Srinivasan 2010, 4). Such
overlending also included groups or individuals obtaining multiple loans from

different MFIs. A 2011 study in Andhra, for example, revealed that 71 percent
of the surveyed MFI clients had taken three or more simultaneous loans from
different MFIs of 10,000 rupees or more (Ballem et al. 2011). As P. Ananth and
Sabri Öncü (2013, 80) note, the MFIs’ business logic was “based on making
multiple loans to already highly indebted borrowers, and geared to recycle debt
rather than facilitate growth of incomes.”
Second, within the commercial logic, MFIs tended to transform the SHG
model into a vehicle for risk socialization among borrowers. Dispensing with
the thrift of the original model and its emphasis on collective decision making
and capacity building within the SHG, MFIs tended to lend to women on an
individual level, making the SHG simply a guarantor of the debts of all. Once an
SHG had been established, MFIs such as SKS streamlined the individual loan
application process to around four hours to help the SHG expand its loan port-
folios at a more rapid pace (Nair 2010). This emphasis on using SHGs as a vehicle
for credit extension also had an effect on state-driven programs. Whereas ini-
tially the SHGs within the state program were intended to operate primarily as
a localized savings pool and as a vehicle for collective solidarity, over the decade
they increasingly became characterized by a singular focus on accessing bank
loans. In part, this was an attempt to compete with MFIs that were keen to use
the institutional structures of SHGs without undertaking the capacity-building
aspects that were implicit within the SHG model (Puhazhendhi 2013).
The sector continued to expand, and some commentators recognized that
a bubble was growing as the logic of competitive provisioning led inexorably
toward a gross oversaturation of the market (Rozas 2009). Reports of house-
holds taking loans from multiple MFIs, and using one loan to aid repayments
on the others, became prominent within the industry yet did nothing to fore-
stall its continued expansion. By 2010 MFIs were seeking new ways of raising
funds, including the securitization of assets, yet continued to concentrate their
activities overwhelmingly in the southern states, where the SHG model had
created a basic infrastructure for expansion. However, MFIs inevitably began
to incorporate clients who had less means to pay back interest amid the growth
of household debts. Even with a client base that was juggling multiple debts
and that had few assets through which to generate income, MFIs did not draw
back but instead amplified the aggressiveness of their recollection policies in a
manner that observers have noted in other parts of South Asia (Karim 2011b).
On the one hand, MFIs often hid the full extent of charges that accompanied
156 Marcus Taylor
normal interest payments to attract new clients. On the other, in order to meet
new disbursement goals and ensure the continued repayment of existing debts,
some MFIs went so far as to outsource their operations to local agents who hap-
pened to be the very moneylenders that microfinance was supposed to displace
(Arunachalam 2011). Violent forms of collection began to arise and, despite pro-
testations of innocence at the time by MFI managers, subsequent investigations
have traced suicides directly back to the MFI collection practices.
In conjunction with the large salaries, bonuses, and dividend windfalls made
by MFI directors and shareholders, the specter of microfinance borrowers being
hounded by profit-hungry MFIs raised political ire across the state. Southern
India had certainly experienced microfinance crises before: notably in Krishna,
Andhra Pradesh—an important forewarning of the later troubles in the state—
and Ramanagaram, Karnataka (Kamath, Mukherji, and Ramanathan 2008;
Mader 2015). Although these earlier crises had remained relatively localized, the
2010 Andhra crisis had major national implications. In response to the fevered
media coverage of the suicides, the state government passed an ordinance that
effectively made it impossible for MFIs to operate. MFIs were, first, forced to
register in each district of operation with local government officials who were
required to approve all loans. MFIs were also prohibited from meeting clients
at their houses or at cluster points around houses, therein making it extremely
hard to ensure repayments. Finally, total interest payments could not exceed
principal, and failure to uphold these regulations was punishable by fines or
imprisonment. Perhaps predictably, these regulations led to a dramatic collapse
in repayment rates, which fell from 98 percent into the low twenties during a
wave of mass defaults. The aura of infallible repayment was shattered, and MFIs
faced a deep crisis of authority and profitability.
For industry proponents, the Andhra ordinance was a politically motivated
stunt that victimized the MFIs as a means to reinvigorate the state’s own SHG
program (Legatum Ventures 2011). In crippling the ability of MFIs to operate,
they claimed, the government was guilty of pushing the rural poor back into
the hands of moneylenders and other forms of informal lending (Ballem et al.
2011; Srinivasan 2012). This interpretation seems to overlook the ways in which
the boundary between formal microcredit and informal lending was blurred,
not least by the practices of MFIs themselves. Yet this idea of MFIs being made
the scapegoats for a bigger issue is not without substance. Notwithstanding the
considerable evidence of poor practices and irresponsible lending by MFIs,
the lack of suitable regulation is only one part of the problem that afflicted
rural Andhra Pradesh. More generally, state policies since the 1990s have pro-
moted a rationalization of Indian agriculture by reducing input subsidies and
tariffs and other liberalization measures. It is not possible to do justice to the
complexities of agrarian transformation here, yet the outcome of these trends
includes heightened social differentiation across rural India on the basis of
class, gender, and caste (Harriss-White 2008; Reddy and Mishra 2009). While
some have prospered within commercial agriculture, the policy paradigm has
simultaneously created new forms of precarious existence as households are
squeezed between the insecurities of smallholder farming and the expansion
of informalized day laboring, petty production, and commercial activities that
offer only marginal returns. The impact of rising living costs and precarious
incomes is exemplified by the difficulty landless and marginal farmers have had
in meeting basic consumption needs, particularly in times of drought, which
occurred more frequently during the 2000s and are possibly related to broader
climatic shifts caused by global warming (Taylor 2015).
Under these stressful conditions, many households saw microloans—from
both microfinance companies and informal sources—as a temporary salve to
their problems. In short, the growing demand for microfinance in rural Andhra
Pradesh did not reflect an urge of the rural poor to be financially included but
was symptomatic of a smallholder and landless population facing severe strains.
It was in this context that multiple borrowing became a common strategy of
households: using newly available credit from varied sources, including MFIs
and moneylenders, to sustain consumption while paying off old debts. Far from
a cure for rural malaise, microfinance in Andhra Pradesh became a cause of
profound insecurity for some households. Caught between the twin pressures
of insecure livelihoods and a rapacious private microfinance sector that sought
rapid expansion, many families increased their dependence on short-term and
expensive microcredit as a survival strategy. While such borrowing practices
might have worked for a time, so long as new microloans were available to pay
off old debts, for some the net result was one of escalating overindebtedness and
tragedy. The question then becomes, to what degree did MFIs make an easy, if
deserving, target for a larger failure in rural development strategy?
After the Fall
Although specific to a single state, the crisis in Andhra Pradesh created deep
problems throughout the microfinance sector in India. With MFIs in turmoil,
158 Marcus Taylor
banks stopped lending and started insisting on loan repayments. Somewhat

ironically, it was the MFIs that suddenly faced a deep credit crunch through a
new form of financial exclusion. With the future of the microfinance sector at
stake, the RBI established a committee to consolidate a national-level regula-
tory framework that might regularize the operations of the commercial micro-
finance sector. The provisions set out by the Malegam committee included a
cap of 24 percent on interest rates, an overall operating margin of 12 percent,
flexibility and consumer choice in loan repayment schedules, a stipulation that
75 percent of a loan should go to an income-generating purpose, no fees beyond
a 1 percent operating charge, a limit on borrower indebtedness of ₹50,000, and
a rule that no borrower could take more than three sequential loans from an
MFI or borrow from more than two MFIs at a time. In short, the Malegam
regulations placed restrictions on MFI profitability at the same time as they
increased some of the costs of doing business. As the RBI formalized the regu-
latory framework into a microfinance bill for parliament, it watered down some
of the Malegam recommendations. For example, it allowed individual loans,
raised the interest cap to 26 percent, and increased the maximum permissible
loan amounts and the overall indebtedness level of the borrower. A year later,
it would remove the interest rate cap altogether, simply retaining the limits on
the operating margin at 12 percent, a level that was intended to fall to 10 percent
for large MFIs by mid-2014.
For some, the RBI framework remained too constraining even though the
restrictions on operating margins were supposed to prevent outreach to more
marginal clients and those in geographically scattered locations, which raised
significant operational costs (Srinivasan 2012). Regulations of this nature were
thought to get in the way of financial inclusion. For others, however, the regu-
latory framework missed key aspects of the crisis. Tara Nair (2011), for example,
noted the absence of regulatory oversight on private equity, which played a key
role in driving the profit-orientated expansion of MFIs in the Andhra crisis.
Moreover, no one knew how the provisions of the bill would be implemented.
Specifically, in conditions of fungible finance and little household data, how
might it be possible to ensure the requirements for productive loan use and the
overall income requirements of borrowers?
While many MFIs themselves remained deeply suspicious of these regula-
tory provisions—in particular the 12 percent cap on margins—they nonethe-
less welcomed the stability that a clear regulatory framework provided, and the
national vote of confidence in MFIs that accompanied the RBI regulations was
seen as a prerequisite to restoring bank confidence in them. New lending under
priority-sector terms could begin, provided banks played a role in ensuring the
application of the new regulatory framework, therein raising the prospect of an
end to the liquidity crunch.
Regardless of the proposed regulatory framework, however, the torpor of the
industry following the events in Andhra was not quick to lift. The liquidity crisis
that accompanied the drying up of bank lending was not immediately reversed
and persisted into 2012, and the overall number of MFI clients and loan port-
folios declined over 2011 and 2012 (Puhazhendhi 2013). This overall decline was
reflected in the drop of outreach in Andhra Pradesh combined with a very slow
pace of growth in other parts of the country. Bank lending picked up again
in 2013 and, at the same time, MFIs began to access new forms of financing,
including securitization. Securitization provided a means for MFIs to access
funds outside of the same regulatory frameworks that governed bank lending,
creating a new gray area in their operations (Nair 2012).
This new influx of funding has led to a much rosier projection for the future
of commercial microfinance in India, as has the appointment in late 2013 of
Raghuram Rajan—a well-known supporter of the microfinance model—as
governor of the RBI. A report on the sector in 2014 anticipated a new wave
of expansion characterized by “a more stable regulatory environment, steady
availability of funds, improving profitability with comfortable asset quality
and capital adequacy and relatively lesser impact of concentration risk” (Care
Ratings 2014, 2). Indian microfinance, it seems, is back in business, although
its pace of growth is markedly slower and it is likely to grow in a more consoli-
dated fashion. Amid the falling profit margins of the post-2010 period, MFIs
have restructured their operations. Internal cost cutting has involved closing
branches and laying off staff, while the business strategy has focused upon
expanding the average size of loans as a means of raising overall lending rates
(Care Ratings 2014). Together, these measures have improved profitability, yet
further expansion driven by an increasingly consolidated number of large MFIs
pursuing a strategy of individualizing lending and increasing average loan sizes
retains many risks. It remains uncertain how these trends will play out. Will
the new regulatory framework curtail the abusive practices that were clearly
at play within Andhra Pradesh? Or will a microfinance sector that must bal-
ance profitability with a regulatory framework that constrains its margins be
160 Marcus Taylor
pushed to value shareholder returns over borrower security? While MFIs argue
that they have learned their lessons and will restrain their tiger instincts so as
to deliver responsible expansion, we might note that the industry remained
bullish about both its financial prospects and its virtuous social mission right
up to the Andhra crisis of 2010, despite plenty of warnings that something was
deeply wrong.
Chapter Nine
The Destructive Role of Microcredit

in Post-apartheid South Africa
Milford Bateman and Khadija Sharife
Introduction
The end of apartheid in South Africa in 1994 heralded the arrival of the interna-
tional development community equipped with a plan to promote a thriving, non-
racial capitalist economy. A key component at the local level was the microcredit
model. Proclaiming that it would rapidly bring new jobs, incomes, empower-
ment, fairness, and dignity to the viciously exploited black South African popu-
lation, the microcredit movement created the widespread expectation that
significant progress was just around the corner. Right on cue, the initial reports
from both the microcredit institutions (hereafter MCIs) and their supporters in
the international development community appeared to back up this prediction.
All looked to be going according to plan. But it was not. Since 1994 the func-
tioning of most poverty-stricken black South African communities targeted by
microcredit has been very seriously undermined, while—not coincidentally—a
small number of commercially savvy white South African male individuals and
white South African–owned institutions have enjoyed stratospheric financial
rewards by supplying this microcredit. The purpose of this chapter is to illustrate
how and why the microcredit sector evolved into one of the most destructive
market-driven interventions in South Africa’s post-apartheid history.
Some Historical Background
The Role of the Informal Economy in the Apartheid Era
The African continent has a long history of community-based finance (Shipton

2010). This history includes South Africa, where the poorest communities were
161
162 Milford Bateman and Khadija Sharife
always very much engaged with, among other institutions, the traditional local
moneylender (mashonisa), rotating savings and loans associations (ROSCAs),
and funeral clubs (stokvels). These long-standing local institutions were formed
in and by the black South African community as a response to a shortage of
capital needed to maintain and expand simple consumption needs, as well as
to support some artisanal production and small-scale farming activities. This
shortage of capital arose because the main banks and other financial institutions
in apartheid South Africa were almost exclusively focused on supporting the
white South African community, particularly the big business community as
it went about extracting and exporting the country’s very rich reserves of raw
materials, notably its gold, platinum, and diamonds (Bond 2013a).
Under apartheid, however, much financial support was provided to local
white South African–led economic development projects, such as industrial
small and medium enterprises (SMEs), agricultural and marketing coopera-
tives, and family-farming operations. In terms of stimulating local economic
development, this effort was very successful. In many respects, formal SMEs
and family farms owned by the white South African community and linked
into markets through membership of a cooperative became the bulwark of
South Africa’s economy under the apartheid system. And, as intended, this
economic success helped to support apartheid in the face of growing pressure
from the impoverished majority black South African community, and from the
international community, for apartheid to end.1 The result of these local finan-
cial measures was that South Africa was able to develop the most technically
sophisticated SME sector in all of Africa. Robust local financial institutions
also became skilled in providing long-term financial support for white South
African–owned family farms and, in particular, for the white South African–
owned agricultural cooperatives that very competently processed, packaged,
and marketed their members’ outputs. Thanks to this high level of state support,
including carefully targeted subsidized credit provided by the Land and Agri-
cultural Development Bank (the “Land Bank”), apartheid-era South Africa was
able to achieve food security, and it even began to export agricultural produce
to neighboring African countries.
At the same time, the South African government’s unwillingness to provide
the black community with a similar level of enterprise and agricultural develop-
ment support (financial and nonfinancial), as well as the legal right to actually
engage in such business activities, helps to explain why almost all black South
African communities failed to develop their own sustainable enterprise sectors.
The Destructive Role of Microcredit in Post-apartheid South Africa 163
Poverty and joblessness in the black South African community under apartheid
were thus endemic by design.
In the late-apartheid period, with international sanctions really beginning to
bite hard, the ruling white South African elite decided that something needed
to change. They thought that providing wider opportunities for petty entrepre-
neurship in the black South African community would go some way toward
dissipating the anger caused by unemployment, grinding poverty, and rising
inequality. They hoped that at least some of those black South Africans most
capable of fomenting resistance to the apartheid regime might be encouraged
to abandon the collective struggle if offered an opportunity to prosper indi-
vidually through microentrepreneurship. Maybe, too, the international com-
munity would also ease off its campaign against apartheid. Even if, in reality,
new microenterprise support programs only benefitted a tiny number of black
South Africans, the common black South African front against apartheid might
be undermined. This divide and conquer approach was very much influenced
by the US government’s approach in Latin America, where such “containment”
policies had helped the United States retain control over the continent for many
years (see Bateman, chapter 1, this volume).
Accordingly, a gradual relaxing of the many restrictions on petty, infor-
mal microenterprise activity in the black townships and rural communities
began in the 1980s (Smith 1992), along with a modest rise in support for local
financial institutions supporting black South Africans attempting to engage
with the informal sector. Late-apartheid South Africa thus gave rise to a large,
informal “survivalist” economy operating within the vast black South African
townships and rural areas (Jordhus-Lier 2010). It was always a closely circum-
scribed movement, however. Care was taken by the South African authorities
to ensure that black South African microentrepreneurs and microenterprises
were restricted to simple, low-capitalized “no-growth” activities that could
never mount a serious commercial challenge to white South African–owned
SMEs and agricultural units operating in the most profitable market segments.
Nonetheless, growing microentrepreneurial activity in the black South African
community took some of the sting out of the apartheid system for a lucky few, as
it was intended to do, and might have dissuaded them from engaging with the
anti-apartheid struggle, yet it was a development that was never able to create
the basis for economic and political power structures that operated outside of
the traditional white South African–controlled channels.
The Informal Sector Is Then Reborn Thanks to Microcredit
Once apartheid was clearly coming to an end, however, the informal sector
was allocated a crucial new role as the market-affirming destination for the
majority of black South Africans in poverty who wanted to escape the ravages
of the apartheid regime. To that end, many hoped and expected that the sophis-
ticated and well-funded enterprise development and financial support services
that had very competently provided for the white South African community
under apartheid would be preserved and then quickly extended to cover poor
black South African communities as well. This type of support was desperately
needed to create a new dynamic, sustainable, and growth-oriented SME sec-
tor centrally involving the black South African community. In actual practice,
however, almost the exact reverse happened: many of the highly effective local
financial and nonfinancial institutions that operated under apartheid were
immediately defunded, privatized, or simply closed down in the post-apartheid
era. As in many other areas after the end of apartheid (such as, famously, land-
reform policy [Weideman 2004; see also Bond 2004]), the international devel-
opment community, and in particular the World Bank, informed the new
African National Congress (ANC) government that such highly intervention-
ist institutions were simply not acceptable. The black South African commu-
nity was told to forget about state intervention and subsidies and wait instead
for “the market” to work its magic and spontaneously begin to provide cru-
cial enterprise and agricultural development support services on a commercial
basis. Despite the fact that this market-driven approach has been shown to be
ineffective in local economic development practice virtually everywhere in the
world (Bateman 2000, 2014c), no alternative was allowed at the time.
The first post-apartheid government was therefore forced to abandon its
hugely valuable endowment of well-performing national, regional, and local
state-led and community-based development institutions and establish instead
a set of untried but ideologically correct market-driven institutions that were
led by the private sector and ostensibly financially self-sustaining in the long
term. In the financial sector specifically, and in spite of long-standing commit-
ments outlined in the famous Freedom Charter (Satgar 2014), the ANC was also
told to forget about state development banks and community-owned banking.
It was instructed instead to extensively liberalize and deregulate in order to
“enable” the market conditions necessary to stimulate private sector financial
institutions to enter the market, including new MCIs.
One of the international development community’s priorities in post-

apartheid South Africa was to ensure that microcredit was the main market-
driven financial instrument operating at the local level. This, and not
nationalization, wealth distribution, or the taxation of white South African–
owned assets and income streams unethically accumulated under the apart-
heid regime, was how jobs and incomes would be created for the majority of
black South Africans living in poverty. Numerous international development
programs thus began to arrive in South Africa to support the new MCIs. The
ANC also introduced its own parastatal institutions, notably Khula Enterprise
Finance Ltd., which were designed to promote much greater access to micro-
credit for the poor by providing wholesale funding to independent MCIs for
on-lending. Finally, the government also encouraged South Africa’s historically
powerful, white-owned private banking sector and entrepreneurial community
to get involved in supplying microcredit to the poor. The supply of microcredit
thus began to rise very fast.
Initially, this increased outreach factor was cause for great celebration. How-
ever, as early as the turn of the millennium it became clear that the bold plan
to pump large volumes of microcredit into the black South African community
was actually quite destructive. Not only were poverty and unemployment not
reduced in the black South African community, but the first signs of serious
individual overindebtedness began to emerge. Even worse, many were uneasy
about the high profits beginning to be generated by many white South African–
owned MCIs, a development that would increase race-based inequality and
exploitation. In fact, thanks to the growing ubiquity of microcredit, the awk-
ward truth that began to emerge under cover of “helping the black South Afri-
can poor” was that the poverty, joblessness, inequality, and powerlessness that
were the norm for black South Africans in the apartheid era were actually being
exacerbated in the post-apartheid era.
Notwithstanding such adverse developments, the ANC government’s sup-
port for (or tolerance of) microcredit only really began to wobble in the early
2000s, when it became clear that a dangerous microcredit bubble had formed
and that it was putting the entire financial sector at risk. This bubble burst in
2002 with the collapse of South Africa’s seventh-largest and leading microcredit
bank, Saambou, and the closure of Unifer, the microcredit unit of South Africa’s
second-largest bank, Absa, a subsidiary of the United Kingdom’s Barclays Bank.
The end result of this programmed increase in the supply of microcredit was
therefore extremely disappointing and certainly nothing at all like that which
the neoliberal policy-making community and global microcredit industry had

excitedly promised back in 1994.
But the Microcredit Model Is Rescued by

Being Redefined as “Financial Inclusion”
Recognizing that it needed do something before the market-driven microcredit

model was discredited entirely in South Africa, and elsewhere in Africa, the
international development community took urgent steps to facilitate its rescue
and relaunch. In the vanguard of this effort was the UK government through its
Department for International Development (DFID) aid assistance arm. With
DFID financial and technical support, a dedicated lobbying body was estab-
lished, FinMark Trust, which was designed to creatively repackage and “sell”
market-driven financial interventions to the South African government once
more. Launched in 2002 and extensively funded by the UK government, Fin-
Mark Trust was initially headed by David Porteous, a longtime adviser to the
World Bank’s own commercialized microcredit advocacy unit, the Consultative
Group to Assist the Poor (CGAP). Acting under cover of being “a facilitator,”
which B. Berkowitz, D. Saunders, and H. Smit (2013) define as “an informed,
trusted, independent and locally based interlocutor responsible for making sure
that the needs of all parties in the financial system are met,” FinMark Trust was
almost the exact opposite of this definition in practice. It was given the hidden
mandate to lobby very aggressively for, and structure all of its research outputs
and conclusions in favor of, the standard array of neoliberal financial sector
imperatives (deregulation, privatization, liberalization, commercialization). It
was instructed to vigorously promote commercialized for-profit microcredit.
Particular emphasis was placed on what was called “making markets work for
the poor” (M4P), an approach that assumed market-driven outcomes were defi-
nitionally optimum but not always realized by the poor in practice, thus requir-
ing some careful, market-friendly intervention from external parties to shift the
balance supposedly in their favor.
Of central importance in fulfilling its assigned rebalancing task was the for-
mulation by FinMark Trust of a seductive new “democratizing finance” trope
(see Porteous and Hazelhurst 2004), which was one of the most influential
exercises in fetishizing the ability of the poor to obtain as much credit as they
might wish for.2 The revised case put forward for microcredit was essentially a
restatement of many of the core, but empirically false, assumptions that under-
pinned the global microcredit movement right from the beginning: (1) that
the poor always had plenty of productive investment projects that needed to
be financed by microcredit, (2) that such projects would somehow always find
a local market for whatever it was they intended to supply, and (3) that the
expansion of such informal microenterprises was the precursor to sustainable
local economic development (on these points, see the following discussion; also
Bateman 2010). Microcredit was thus joyously portrayed—in spite of its earlier
failure—as an economically optimal intervention. Its inaccessibility was also
presented as an affront to the dignity of the poor in South Africa and a denial
of their basic human rights.
Thanks to such efforts, FinMark Trust would prove hugely important in
expediting the rebirth of the microcredit model in South Africa (and in many
other parts of Africa too—see Napier 2010). And rather than being seen as
the cause of the problems to date, which the evidence strongly suggested was
the case, even further deregulation, liberalization, and commercialization of the
microcredit sector were demanded by FinMark Trust. The most important com-
ponent of these changes, as Juergen Schraten (2014) has carefully pointed out,
involved greatly simplifying the loan process, effectively redefining the term
microcredit to mean simply “a loan below Rand 10,000,” while also ensuring that
informal lenders were kept out of the market for microloans. One other impor-
tant change was to make it possible to lend without the traditional need for col-
lateral. Instead, risk was to be reduced through the use of automatic deductions
from the salaries of borrowers (garnishee orders), which began to massively
proliferate,3 with high real interest rates (up to 60 percent annually)4 used to
offset higher default losses incurred on unsecured microloans. FinMark Trust’s
extensive lobbying effort was also very influential in shaping the content of the
National Credit Act (NCA) passed by the South African government in 2007
and in ensuring that a National Credit Register (NCR) was set up, both of which
brought further order and transparency to the microcredit sector.
The microcredit market in South Africa recovered and then went into hyper-
drive: a major profit-making opportunity in supplying unsecured microcredit
to black South Africans in poverty had been opened up. Entrepreneurs and for-
profit MCIs rushed to take advantage. One of their initiatives was the Mzansi
account, a bank account specifically designed by a number of South Africa’s
banks to attract the poor and turn them into “financially included” citizens. Two
new microcredit banks also got started—African Bank and Capitec Bank—
both of which began to expand very rapidly. With the full support of the inter-
national development community, and backing by many microcredit advocacy
bodies and individual microcredit advocates operating in South Africa itself,
notably South Africa’s leading microcredit advocate, Gerhard Coutzee (see
Coetzee 2003), African Bank and Capitec Bank were initially celebrated as the
new “professional” face of the microcredit movement. Keen not to be left out of
the potentially very profitable microcredit sector, however, the old, established
white South African– and foreign-owned private banks also returned to the
market, and they began to ramp up their own microcredit programs as fast as
they could. The overall supply of microcredit in South Africa thus began to grow
once again, but this time almost exponentially.
Once again, this latest expansion was hailed as the solution to South Africa’s
problems. This time around, however, the argument in favor of more micro-
credit was couched not so much in terms of the now increasingly discredited
notion that it might directly promote poverty reduction (on the latest admission
of failure in this regard, see Banerjee et al. 2015), but in terms of resolving what
has been described as the new overarching problem facing the poor: “financial
inclusion” (see Bateman, chapter 1, this volume). Then head of FinMark Trust,
David Porteous, enthusiastically expounded on this issue, arguing that greater
financial inclusion would bring about a major episode of poverty reduction in
South Africa. Speaking in 2003, he confidently predicted, “If the [2003 financial
inclusion] targets are achieved, this will have a dramatic impact, adding some
8 million clients to the existing base of some 13 million in the financial sector”
(Kirsten 2006, 5).
Be Careful What You Wish For:

Financial Inclusion Creates a Disaster
Unfortunately, it is now becoming widely accepted, even in South Africa’s tradi-

tionally pro-microcredit financial community (e.g., Melzer 2015), that the exact
opposite of Porteous’s uplifting prediction has transpired. After what seemed
like progress, South Africa’s microcredit sector began to precipitate an even
deeper crisis for the poor. After 2011, when it became too costly for the banks
involved, the Mzansi bank account initiative that had started in 2005—an initia-
tive designed to provide all of South Africa’s poor with a bank account—began
to peter out. The problem was that although a high number of individuals had
been encouraged to sign up for a Mzansi account, more than half of these indi-
viduals did not go on to use them, which meant that the banks could not gen-
erate any fee income on the product (Ismail and Masinge 2011). Evidently, full
financial inclusion was not appreciated by the poor as much as by those sup-
posedly attempting to assist them.
Nevertheless, as before, the key operational milestone—financial inclu-
sion—was more than achieved. But reaching this milestone created a multi-
tude of disasters. First, in spite of so much activity and funding no identifiable
progress was made in terms of sustainable job creation. As we shall see, the
comparatively small amount of net job creation in the informal sector was
swamped by a spectacular across-the-board decline in the average incomes of
all those actually participating in the informal sector, which helped precipitate
higher levels of poverty than had existed under apartheid. Second, a stagger-
ingly high level of individual overindebtedness quickly became the new norm
in black South African communities (Fin24 2012), a norm that, not coinciden-
tally, existed alongside extreme levels of profit generated by the white South
African providers of microcredit.
After 2004, the level of unsecured debt began to rise quite fast. But between
2007 and 2012, at a time when the economy was in serious difficulty thanks to
the global financial crisis, outstanding unsecured credit in South Africa’s poor-
est communities increased spectacularly, going from R41 billion to R159 billion.
This growth created major problems for a rapidly expanding percentage of the
debtors (Business Tech 2015). By 2012 the South African Central Bank calcu-
lated that household debt amounted to around 75 percent of disposable income.
It was estimated in 2013 that as much as 40 percent of the entire South Afri-
can workforce’s income was spent on repaying debt (MoneyWeb 2013). South
Africa’s Credit Bureau Monitor (CBM) showed that by the end of September
2014 nearly ten million of the twenty-three million credit-using individuals
in the country (45 percent of the total) had impaired credit records and were
struggling with their debt repayments (Politiki News 2015). In 2015 a report pro-
duced by the World Bank officially announced that South Africa was the most
overindebted developing country in the world, with an astonishing 86 percent
of the population in debt (Demirguc-Kunt et al. 2015).
Bombarded with microcredit, a large number of black South Africans in
poverty simply cannot repay even a fraction of what they owe, while a very small
white South African financial elite have created an economically, politically,

socially, and culturally destructive microdebt trap of historic proportions and
been able to profit beyond their wildest dreams.
Exposing the Fundamental Flaws in the Microcredit Model
This narrative should make it crystal clear that the microcredit model is facing
an unprecedented challenge in South Africa today. In this section (see also Bate-
man 2014b, 2015), we will expand on the key problems that have emerged in
post-apartheid South Africa.
Microcredit Is Mainly Used for Consumption Spending
The fundamental rationale for the microcredit model is that it is a method of

supporting income-generating activities. As elsewhere around the globe (Bate-
man 2010, 135–40), however, microcredit in South Africa has overwhelmingly
been used to meet simple consumption needs, a trajectory that eventually pre-
cipitates a multitude of risks and bad outcomes. After 1994, a large number
of MCIs—including African Bank and Capitec Bank—emerged and chose to
manage the obvious risks of consumption lending, thereby making considerable
sums of money for their owners and managers. Already struggling to survive at
the “bottom of the pyramid,” the black South African community was ruthlessly
exploited. Clients were confronted with carefully concealed high interest rates,
hidden administrative fees, unannounced penalties for nonrepayment or early
redemption, garnishee orders that could tap into a client’s income in order to
repay a debt, and grossly exorbitant lawyer fees that were incurred for any triv-
ial contract infraction. It was almost too easy to extract large amounts of value
from the poorest and most financially illiterate black South African communi-
ties. Indeed, such was the attraction of this new market that by 2012 as little as
6 percent of the total volume of microcredit advanced in that year was actually
used for conventional business development purposes (Mondaq 2013).
As we have noted, the overall result of this turn to consumer microloans
was a dramatic rise from 2000 onward in the extent of overindebtedness across
the very poorest black South African communities. Seduced by the lure of a
purchase that brought a temporary ray of light into an otherwise humiliating
and insecure existence, South Africa’s poor were easy targets for their local
MCIs encouraging them to access as many microloans as they wanted. But the
gradual overindebtedness of the poor black South African population began to

destroy the social fabric of South African society, with intercommunity rela-
tions deteriorating into even deeper levels of suspicion, mistrust, and anger
than at almost any time under apartheid.
Microcredit Supports Unsustainable

Forms of Enterprise Development
The second major microcredit-related problem to have emerged in South Africa

relates to the very small percentage of microcredit that actually does go into
supporting income-generating microenterprises, as per the original model: the
fact remains that the “business” activities supported by microcredit are simply
not the drivers of sustainable development and poverty reduction. As we have
noted, South Africa’s oppressed black communities participated in an exten-
sive informal microenterprise sector stretching back into the apartheid past,
and very few microenterprises were able to specialize or grow into significant
operations on account of legal restrictions, as well as the sheer dearth of spend-
ing power in the poorest communities. What this signified in the post-apartheid
era was that the market for the outputs of a new cohort of informal microenter-
prises was actually very limited. The poor in South Africa generally had an ade-
quate supply of the simple items and services upon which they could survive but
little to no income with which to access these items and services. This funda-
mental lack of local demand was understood by researchers in the field, includ-
ing Andries Du Toit and David Neves, who in a major study concluded that
the most important limitations and constraints faced by the self employed
people [in South Africa] do not lie in a lack of training or entrepreneur-
ship, nor [is there] much evidence of a big pent-up and unmet demand for
microfinance. Rather, a key issue appears to be simply the limited scope for
viable businesses in the spatial poverty traps created by rural underdevel-
opment and the spatial legacy of Apartheid. These keep poor people stuck
in markets where money is scarce. (Du Toit and Neves 2006, 6)
But this limited demand issue was typically rejected outright by both micro-
credit advisers and neoliberal policy makers, who thought it of no practical
importance that a large-scale microcredit-induced expansion of microenter-
prises was supposed to take place in exactly these already supply-saturated local
market spaces. The end result of such insouciance was quite predictable: enor-
mously high levels of displacement and exit.
So, for example, the large number of traditional spaza shops struggling to
survive under apartheid were thrown into chaos when many more spaza shops
opened up with the help of microcredit. Jennifer Cohen (2010) is one of many
analysts who reported on the reduced wages and profits and anger caused by
larger and larger numbers of “poverty-push” petty retailers aggressively com-
peting with each other for a gradually declining level of business (a decline
that accelerated after 2008). Similarly destructive market dynamics also played
out in the shape of the infamous turf wars fought after 1994 between the exist-
ing formal taxi services and growing numbers of informal (or “pirate”) taxis
(Lomme 2008). Perhaps the most worrying manifestation of the local mar-
ket saturation problem, however, was the increased competition from infor-
mal microenterprises started by migrants coming to South Africa to escape
persecution elsewhere in Africa (Crush and Ramachandran 2014), a develop-
ment that forced many incumbent petty retail microenterprises to exit and that
ended up initiating a dramatic rise in violence against informal migrant-owned
microenterprises.
As elsewhere across Africa (Page and Söderbom 2012), much of the reported
microcredit-induced increase in informal sector employment in South Africa
was canceled out by job displacement and by a much higher rate of exit of incum-
bent microenterprises (Bateman 2010, 71; Kerr, Wittenberg, and Arrow 2013).
The microcredit sector thus largely failed to achieve any real progress in terms
of sustainable enterprise development and net employment creation.5 What
South Africa’s poorest communities have experienced instead is an unproduc-
tive “job churn” or “turbulence” outcome that has proved to be developmentally
ineffective and that has almost entirely wasted the time, resources, and effort
invested into the whole exercise (on this, see Nightingale and Coad 2014).
But perhaps even worse than the waste of creating only a modest number
of net jobs was a second problem caused by the microcredit-induced increase
in competition in the informal microenterprise sector. Artificially heightened
local market competition not only displaced jobs, it unleashed a powerful
double whammy: first, a softening in local market prices and second, a reduc-
tion in the average turnover per microenterprise as demand was shared out
among them. These market-driven factors exerted a downward pressure on the
average financial returns per informal microenterprise, and average earnings
were reduced quite significantly. For example, Geeta Kingdon and John Knight
(2005) found that between 1997 and 2003, self-employment incomes dropped
by an astounding 11 percent per annum in real terms. Likewise, Daniela Casale,
Colette Muller, and Dorrit Posel (2004, 13) found that “in 2003 average real
earnings among this group of the employed stood at less than a third of the 1995
value” (emphasis added). While mainstream economic theory holds competi-
tion to be capable of generating consumer welfare in the form of lower prices,
the situation is quite different when it is the very poorest working in informal
microenterprises who are having to absorb these lower prices (and the middle
classes who are benefitting from cheaper items and services).
Overall, the sheer lack of local demand in South Africa’s poorest black com-
munities during the aftermath of apartheid and under austerity conditions
undermined the promotion of new informal microenterprises as the “anti-
poverty” solution.
Microcredit Has Opened the Way for the Socially

Validated Exploitation of the Poor
A third problem with microcredit in South Africa is related to the extensive

commercialization that was introduced into the global microcredit industry in
order to make it financially self-sustaining, but which actually opened the door
to massive profiteering by white South Africa’s financial elite at the expense of
black South Africa’s poor. Far too many high-profile microcredit advocates and
neoliberal policy makers in South Africa naïvely bought into the myth of the
free market, including its particular aversion to robust regulation and oversight.
They believed that commercialized MCIs would dutifully stick to their mission
statement and responsibly lend to the poor. This belief proved to be wrong. Only
now are people in South Africa (and everywhere else [see Mader 2015]) realiz-
ing that the real aim of the majority of South Africa’s MCIs was not to help their
poor clients so much as to extract as much value from them in the shortest time
possible. Bravely admitting this realization—that microcredit effectively makes
the rich richer and the poor poorer—was the manager of one of South Africa’s
largest commercial investors operating in the microcredit sector. Ending his
company’s highly profitable microcredit investments in 2013, he said,
The industry seems to be pumping debt down peoples’ [sic] throats. It is

no longer socially responsible and does not belong in developmental funds.
. . . The fundamentals are blown and the business model is unsustainable;
70% to 80% of “new business” is to existing clients. So the trick is to keep

them on an indefinite treadmill, always reoffering them a new loan, or
reschedule but by lengthening the term to reduce the installment. (Shevel
2013)
For an illustration of the problem we can turn to the activities of the two major
dedicated microcredit banks that emerged in South Africa in the early 2000s:
Capitec Bank and, especially, African Bank.
Capitec Bank is one of the most controversial banks in South Africa’s financial
sector. Established in 2001 by a group of white South African businesspeople in
order to provide microcredit to the poorest black South African communities,
Capitec Bank was able to expand quite dramatically, and it became one of the
most profitable banks in South Africa. Its expansion reached a crescendo after
2008, when the global financial crisis had plunged South Africa into recession
and when its poorest citizens were in an intensified struggle to survive from one
day to the next. In just four years (2010–2014), Capitec Bank’s book grew sixfold,
from R5.6 billion to R33.7 billion, a simply staggering rate of growth (see Topol
n.d.). But rather than assisting black South Africans to escape their poverty and
suffering, this wall of microcredit, or “desperation lending,” only intensified
their poverty, suffering, and vulnerability. The real (and intended) beneficia-
ries of Capitec Bank were to be found elsewhere. First, in the form of Capitec’s
largely white South African shareholder base, which had been able to reap huge
dividends and capital appreciation since its establishment in 2001. And second,
in its senior management, which enjoyed huge salaries and bonus payments,
as well as dividends and capital appreciation on their personal shareholdings.6
Of particular note here is the white South African former CEO Riaan Stassen,
who enjoyed a level of reward that lifted him from middle manager status to the
fifty-eighth richest individual in South Africa.7
In both scale and scope, however, the case of African Bank constitutes the
most dramatic and singularly destructive in the South African microcredit sec-
tor. Co-founded in the 1990s by Leon Kirkinis, who regularly claimed that he
was “on a mission to lend money to those shut out by the apartheid state” (Fin24
2014), African Bank was to become the largest microcredit bank in the country.
In the process, it also catapulted Kirkinis from middle management obscurity
into the very top ranks of South Africa’s rich. However, hubris eventually tri-
umphed: Kirkinis resigned in 2014 shortly before African Bank collapsed and
was forced into a rescue by the South African government.
As in the case of Capitec, African Bank prospered by providing expensive,

unsecured microcredit to the most vulnerable individuals in South Africa,
including those employed in the mining sector. Kirkinis opted to take a “mod-
est” salary and focus most of his attention on building up his personal owner-
ship stake in African Bank, the value of which could then be maximized by
breakneck growth leading to appreciation of the share value.8 As planned, rapid
growth and high dividend payments ensured that African Bank’s share price
rose very quickly indeed. By 2013 Kirkinis was holding an estimated R500 mil-
lion (around US$50 million) worth of shares in African Bank. However, Afri-
can Bank’s rapid growth was achieved through very dubious means, including
reckless lending and underprovisioning for what were likely bad debts (Bonor-
chis and Spillane 2014). With the market for unsecured microloans thoroughly
saturated, it was only a matter of time before either Capitec Bank or African
Bank, or both, would succumb. African Bank was the unlucky one. In August
2014 African Bank’s share price began to tank, Kirkinis resigned as CEO the
day before an important trading update, and it became clear that African Bank
simply did not have the available funds to survive the crisis of overindebtedness
it had created for itself.
Rather than see African Bank collapse completely, however, the South Afri-
can government stepped in with a bailout of US$1.6 billion (Eyewitness News
2014). African Bank was immediately divided into a “good” bank and a “bad”
bank. Its few depositors (less than 1 percent of capital was raised this way) were
secure, thanks to a state deposit guarantee, but African Bank’s institutional
investors were not protected and so stood to lose everything. After negotiations
with the government, however, the institutional investors emerged with almost
all of their wealth intact, being forced to incur only a 10 percent “haircut” on
their assets (Ndzamela 2014). After many years of high dividend payments, the
South African state still wanted to ensure that African Bank’s investors lost very
little when it all, quite predictably, collapsed. As for the senior managers who
had enjoyed huge financial rewards prior to the bank’s collapse, they received
somewhat less sympathy. In September 2014, the Reserve Bank of South Africa
announced that it would form a commission of inquiry, headed up by leading
South African advocate John Myburgh, to look into the way African Bank had
operated under Kirkinis and to prepare the way for possible criminal charges to
be laid against him and other senior directors (Jones 2014). While the commis-
sion found that African Bank had indeed broken many laws,9 the South African
government eventually chose not to criminally charge any of the individuals
involved, which included Kirkinis. With the South African financial system
already under pressure from the global financial crisis, and with the country’s
economic situation worsening as well, a criminal indictment of a high-profile
banker would only have further deterred the global investment community
from investing in South Africa.
All told, both African Bank and Capitec Bank pioneered a business model
that was based on using the institution as a way of creatively redistributing the
existing reserves of wealth and income held by the desperately poor into the
hands of the CEO, senior management, and some core shareholders. Most other
traditional stakeholders that a company might wish to serve—the employees,
the community, and, above all, the clients—were ignored or else, in the case of
the clients, exploited for all they were worth. In other words, both banks were
classic examples of what financial regulator William Black (2005) has termed a
“control fraud” (see Bateman and Sinković, chapter 7, this volume). The ultimate
result in South Africa of such control frauds becoming endemic was a US-style
subprime-like crisis of greed, fraud, speculation, and exploitation.10
Informal Microenterprises Are Simply Not

the Drivers of Growth and Development
One of the most destructive effects of the microcredit model is its undermining
of the sustainable development of the local economy (Bateman 2010). Thanks
to the rapid development of the microcredit sector and MCIs, it is of consider-
able importance that South Africa’s financial system ensures a growing volume
of the country’s scarce financial resources are very profitably channeled into
informal microenterprise and self-employment ventures. But such applications
are far from the most productive and sustainable activities associated with
economic development. Meanwhile, the most productive enterprises—formal
small, medium, and large enterprises—are starved of financial support. The
result of this “crowding out” effect, as surveys in South Africa have repeatedly
pointed out, is a dearth of formal SMEs because they have serious difficulty
gaining access to credit on appropriate terms and maturities, especially if they
originate in the black community (Turner, Varghese, and Walker 2008).
Rising from a base of almost zero in 1994, the supply of unsecured micro-
loans represented more than 11 percent of the total lending of the South Afri-
can banking sector by early 2013 (see Goldman Sachs 2013, 42). Thus, at the
very same time that South Africa’s MCIs were wrestling with the “problem” of
how to dump yet more microcredit onto the shoulders of their already mas-
sively overindebted black South African clientele, managers working in South
Africa’s formal SME sector reported that they were effectively being starved
of the funding necessary to grow their businesses (IFC 2007). Not surpris-
ingly, as one recent report published in early 2014 pointed out, since January
2013 the informal sector had “added 73,799 jobs, compared to a total decline of
241,536 permanent and temporary jobs (in SMEs and large firms), reflecting the
growing importance of the informal sector in the South Africa labour market”
(Mail & Guardian 2014). Very much as in Latin America (Bateman 2013b), and
notably also in Bosnia (Bateman and Sinković, chapter 7, this volume), MCIs in
South Africa are responsible for helping to undermine long-term development,
growth, and poverty-reduction possibilities.
MFIs Deliberately Target the Most Vulnerable

in Mining Regions of South Africa
Finally, we come to the most emblematic episode associated with the micro-
credit sector in post-apartheid South Africa, an episode brought about by the
microcredit sector’s deliberate engagement with some of the most vulnerable
and exploited individuals there. The mining sector in South Africa is one of the
most profitable business sectors in the world, but at the same time, it is one of
the most exploitative of its labor force. The entry of microcredit into the mining
sector helped create a disaster that shook the very foundations of South African
society.
The city of Rustenburg is the focal point for much of South Africa’s hugely
important mining industry. The multinational corporations that own the mines
around Rustenburg generate enormous profits from the mining of gold, plati-
num, and other rare metals. However, the individual miners, as well the local
community of Rustenburg, do not benefit very much from the extraction of
such resource wealth. Rustenburg is part of the Bojanala Platinum District
Municipality, which has an unemployment rate of around 40 percent because
the bulk of the miners are migrant laborers brought in from the rural areas out-
side of Rustenburg by labor brokers hired by the mine owners. The reason for
this preference is easily apparent: migrant laborers coming from these very poor
areas are even cheaper and more tolerant of abuse and poor working conditions
than are mine workers who might be recruited locally. Away from their homes
and families, with little disposable income thanks to the necessity of supporting
two households (the family household in the rural area and the lodgings at
the mine), working under very harsh and dangerous conditions, and also all
too often financially illiterate, many of the migrant mine workers are especially
vulnerable. As such they were seen by many commercial banks and dedicated
MCIs as perfect targets.
Indeed, the opportunity for serious profit-making in Rustenburg drew
formal MCIs to this city like bees to nectar. In 2012 in the city of Rustenburg
alone, in addition to numerous payday lenders and traditional mashonisas, a
total of eighty-one formal MCIs were providing financial services. Among this
number were African Bank, Capitec, the big four South African banks, Blue
Financial Services, Bayport, Real People, Finbond, and Old Mutual. These were
all seen as reputable financial institutions, and almost all of them were regis-
tered on the Johannesburg Stock Exchange. The MCI with the largest presence
in Rustenberg in 2012 was, perhaps not surprisingly, African Bank, with nine-
teen outlets in the town, followed by JD Group with sixteen, Capitec Bank with
ten, Nedbank with nine, StanBank with seven, and Absa with five (Citi Research
2012). If we take the population of Rustenburg to be around 250,000, we find
one formal MCI for every 3,000 individuals: a simply staggering number of
formal MCIs in such a small area, way beyond even the most liberal interpre-
tation of the supposed need to support local microentrepreneurs and achieve
“financial inclusion.”11
Moreover, a good number of these MCIs were physically located on the min-
ing premises, including the Marikana mining complex just outside Rustenberg.
It was almost inevitable that the deliberate and massive step-up in microlend-
ing around the Marikana mine would quickly plunge large numbers of mine
workers into unrepayable levels of debt, which led to dangerously high levels of
anger, resentment, and fear for the future (Davis 2012).
As their levels of indebtedness grew, members petitioned the National
Union of Mineworkers (NUM) to do something on their behalf, perhaps pro-
vide debt counseling and workouts. However, the NUM refused to assist the
mine workers, not least because it had also decided to get in on the microlend-
ing frenzy under way in Rustenburg, thanks to its part ownership of UBank, one
of the largest and most profitable of the MCIs working in the locality.12 Eventu-
ally, the workers called for an unofficial strike with a view to securing increased
pay that would, among other things, help them escape from the crushing debt.
Unfortunately, the strike action was met with an extremely aggressive response
by the local police force working in conjunction with the mine owners and
advised by the ANC. Tensions continued to rise, and then a series of largely
peaceful protests was met with an armed response from the local police. On
August 16, 2012, South Africa was convulsed by what became known as the
Marikana massacre—the murder of thirty-four unarmed mine workers by
police brought into the Lonmin Corporation’s Marikana platinum facility to
break the strike and the worst violence in post-apartheid South Africa to date.
The reasons for the problems at Marikana were endlessly debated in the
months that followed, but virtually all analysts agreed that a central factor was
the massive overindebtedness of so many of the mine workers there (Bateman
2012b; Bond 2013b). When stratospheric levels of overindebtedness among vul-
nerable and physically stressed individuals are overlaid upon other pressing
economic and social problems, why should we be surprised to find that the
resulting pressure can only be contained for so long?
Conclusion
This chapter has shown that the microcredit movement has played a calami-
tous role in the economic and social development of post-apartheid South
Africa. Since the end of apartheid, South Africa’s scarce financial resources
have been increasingly funneled into consumption spending and, when
“invested” at all, into no-growth ultra-low-productivity informal microenter-
prises and self-employment ventures. As in many other countries with a similar
microcredit-led financial intermediation at the local level, the end result has
been the deindustrialization, informalization, disconnection, and primitiviza-
tion of the average community. In addition, the microcredit model has played
an important role in generating the levels of inequality, aggressive competition,
and manifest unfairness that are all too characteristic of South Africa today.
These have helped to stretch to the breaking point the already-weak interclass,
intergenerational, and interethnic bonds within post-apartheid South African
society. These interrelated developments do not bode at all well for a country
desperately attempting to cast off the vicious legacy of apartheid and to move
into a new era of social justice and interracial accommodation.
Notes
1. For example, the white South African–owned SME sector was especially
important during the period of international sanctions, when it successfully
responded to the call for a range of high specification inputs required by the
largest South African companies operating in the crucial military and internal
security sectors.
2. Many high-profile, mainly US-based, economists rather ill-advisedly took up

the concept and ran with it, notably Nobel Prize in Economics winner Robert
Shiller (2008), who termed it “financial democracy.”
3. In 2015, however, garnishee orders came under serious legal challenge when
a high court judgment invalidated a number that had been unfairly obtained.
With an important precedent thus set, further moves to outlaw garnishee orders
are likely. See BDLive 2015; also Steinberg 2015.
4. This calculation also takes into account the initiation fees, insurance costs,
collection costs, and administration fees that are routinely added to the cost
of servicing a microloan.
5. We should also point out that while informal microenterprises appear to have
expanded, one important reason for this expansion is the growing number of
formal small enterprises (10–49 employees) that have contracted and fallen into
the category of informal microenterprise (0–1 employees). Indeed, this trend
is now seen as one of the primary labor market dynamics in South Africa (SBP
2013, 6).
6. For example, chairman of Capitec, Michiel le Roux, enjoyed a few stunningly

successful years that helped his net worth to reach a hefty R2.9 billion in 2011,
moving him up from twenty-sixth to fifteenth position in the top one hundred
rich list. In 2014 le Roux, along with fellow director Andre du Plessis, sold R424
million of Capitec stock they had accumulated in earlier years. Jannie Mouton
was ranked sixteenth in the top one hundred rich list and in 2011 was worth
nearly R2 billion, with a good slice of this wealth derived from his position as
executive chairman of PSG, the owner of 34.6 percent of Capitec. Former non-
executive director of Capitec Tshepo Mahloele managed to accumulate a per-
sonal fortune of R270 million by 2011. Finally, thanks to his shares in Capitec,
nonexecutive director of Capitec Chris Otto was able to boost his personal
wealth to R239 million by 2011. See Farai 2011; also Lefifi 2014.
7. Awarded in 2004 a personal shareholding of 167,645 shares priced at R7.61 per

share (i.e., a total value of around R1.3 million), Stassen in mid-2012 off-loaded
a fifth of his shares for nearly R100 million (around US$11.5 million) at a price
per share of around R220, with nearly R400 million (around US$46 million) of
Capitec shares still held by his private investment company. See Fin24 2013.
8. By “modest” we mean that in his best salary year (2007) Kirkinis received “only”
R5.6 million (around US$1 million). See Rees and Mkokeli 2014.
9. See Rose 2016.
10. This was the considered opinion of noted South African essayist T. O. Molefe,
writing in the New York Times in late 2014.
11. Although not quite comparable, the data provided by Berger (2006) help to
put the stunning level of penetration in Rustenburg into context. She reports
that in Latin America the number of individual clients serviced by the average
MCI is around 31,000, which she compares to Asia, where an individual MFI
on average has up to 130,000 clients. Berger argues that the higher the num-
ber of clients serviced, the more efficient the MFI is assumed to be (economies
of scale). In the South African example, of course, scale diseconomies would
appear to be minimal, yet they are more than compensated for by high interest
rates, one-off fees, penalties, and other charges that generate profit for the aver-
age MFI.
12. Interestingly, in early 2015 UBank was also charged by the South African gov-
ernment with reckless lending to its mainly gold and platinum miner clients.
See Reuters 2015.
Chapter Ten
Public Goods Provision Aided by Microfinance

Groupthink, Ideological Blinkers, and Stories of Success
Philip Mader
Introduction
The spectacular growth of microfinance activities has brought millions of poor

people into the reach of the global financial market. But this growth has not
merely been quantitative; microfinance has also qualitatively expanded into new
areas. Organizations such as the World Bank and the Bill and Melinda Gates
Foundation increasingly understand credit as a means of enhancing access to
goods like education, health care, irrigation, and water and sanitation. Instead of
fostering small businesses or funding consumption, which microlending origi-
nally concentrated upon, numerous programs since the turn of the millennium
have sought to use microcredit to enhance or replace the state’s traditional role in
the area of public goods provision. This contribution focuses on the application of
microcredit to water and sanitation, an idea that has enjoyed prominent support
from celebrities like Matt Damon and toward which PepsiCo, for instance, made
the largest charitable donation in its corporate history.1
Specialized microfinance media have observed, “The latest craze in the cre-
ative use of microfinance as a generator of positive externalities is the use of
microcredit for the provision of clean water,” but the same article also goes on to
note that “there are some potentially significant barriers to its implementation
that would occur to any critical thinker” (Jenkins 2011). Indeed, one may ask, as
this chapter does, why, of all things, should microcredit be touted as a solution
to the lack of water and sanitation—or health care, irrigation, or education—in
poor communities? Why replace collective solutions with private credit, making
poor people use debt to pay elevated prices for second-rate services?
The focus here is on a particular project for linking microedit to water
and sanitation (watsan) in Andhra Pradesh, India, and the way in which such
183
184 Philip Mader
projects are promoted as a success. But the larger phenomenon under study
remains the extension of microfinance beyond debt for entrepreneurship and
consumption and into access to basic resources that usually have been collec-
tively governed as commons or public goods. This area is currently emerging
as an important new frontier for a microfinance industry whose promises of
poverty alleviation and development promotion are more in question than ever.
As this chapter shows, microfinance can be—and is—used to commodify, pri-
vatize, and financialize public goods without the need for politically mandated
privatization programs. Loans make these goods saleable as commodities,
making access to them a private problem and bringing their governance closer
to the financial market. Whatever the intentions of the promoters of micro-
finance for public goods may be, such projects serve to extend the reach of pri-
vate finance into the governance of traditionally publicly managed goods.2 Of
course, these attempts to commodify, privatize, and financialize public goods
are by no means always successful—as the evaluation here shows, they often
encounter severe problems—but it is illuminating to study how and why some
actors energetically pursue the extension of water and sanitation resources to
poor people via the microfinance intervention. The processes of groupthink
that are inherent to epistemic communities may help to explain why, despite
lack of proof, so many proponents of microfinance conclude again and again
that more microfinance is key to addressing social problems.
Microfinance for Public Goods: An Overview
The concept of using microfinance for the provision of public goods dates back
to the 1990s. Its economic and ethical foundation is the promise of a situation in
which three parties benefit: the client who takes a microloan and buys access to
a service, the lender who earns interest on that microloan, and the service pro-
vider who realizes a profit from the sale of the good (e.g., water or health care)
to the borrower. The central assumption underlying this “win-win” narrative is
that small-loan finance from private microfinance institutions (MFIs) can act as
a substitute for the financing of goods and services by public bodies.
The fact that this substitution entails microfinance-based provision replac-
ing the activities of state and municipal providers is often not made fully obvi-
ous in the literature, but it was revealed in the earliest publications by the US
Agency for International Development (USAID), which suggested water and
sanitation as part of an emerging “market for housing improvements” (Varley
Public Goods Provision Aided by Microfinance 185
1995, 52). Robert Varley (1995, ix) states, “Municipal or state-owned utilities
are often inefficient, overregulated, and unable to supply even the formal sec-
tor with adequate services. Subsidies through tax transfers and foreign aid/
borrowing are becoming more difficult to secure.” In this view, the public sector
is by definition incapable, and aid and tax transfers will naturally decline over
time, yet fragmented, individualistic business approaches are seen as having the
capacity both to attract finance and to deliver services. Microfinance provision
has since been suggested to be capable of generating improvements for house-
holds in a variety of public goods arenas—including education, health care,
power, irrigation, water, and sanitation—and even assuring peace.
Education
Researchers have often theorized a possible connection between microloans

and improvements in children’s education, believing either that microloans
would increase household incomes and thereby contribute to better school-
ing (although results from impact investigations have been disappointing; e.g.,
Banerjee et al. 2009) or that microloans could be coupled directly with edu-
cation programs. For instance, Saleha Khumawala (2009, 11) proposes that
microcredit business models could potentially include “an education fund for
a client’s child with the purpose of funding current and future schooling with a
portion of the client’s payments, along with a matching amount from the MFI.”
Health
Numerous authors suggest that loans would help poor people overcome spon-
taneous health crises and generally improve their health status (Gertler, Levine,
and Moretti 2009; Pronyk, Hargreaves, and Morduch 2007; Dohn et al. 2004;
Leatherman and Dunford 2010). Some authors even suggest that microfinance
should play a targeted role in crises like Africa’s HIV epidemic and that the
deadly disease generates an “expanded role for microfinance”:
Once HIV/AIDS gains a foothold in a household, the role of microfinance

changes. In this stage, the role of microfinance is primarily to support the
productive activities of non-sick family members: those that care for the
family’s sick and for any orphans living with the family. . . . Finally, after
AIDS sweeps through a family, survivors—often grandparents and older
186 Philip Mader
children—must rebuild the economic base of the remaining household. As

these individuals become prepared to take on the tasks and risks of entre-
preneurship, there may again be a role for microfinance to support these
efforts. (Parker, Singh, and Hattel 2000, 1–2)
Electricity
In terms of more classical public utilities, M. Kabir, H. Dey, and H. Faraby

(2010, 1) claim that Grameen Bank borrowers often buy solar home electricity
systems and subsequently use them for income-generating purposes; because
the incomes then allow them to recoup the costs of these expensive systems,3
microfinance should be seen as “the sustainable financing system for electri-
fication and socio-economic development of remote localities.” However, a
previous study from Bolivia, which started from the premise that microfinance-
funded enterprises would increase the electricity connection uptake, found no
such effect (Sologuren 2006).
Irrigation
Water supply for agriculture, the provision of which is possibly one of the oldest
functions of the state, is also seen by some as a suitable target for linkage with
microfinance: Lutta Muhammad (2005) suggests that microfinancing raises the
willingness of farmers to install irrigation systems and construct water-saving
terraces. Isabelle Stauffer (2011) proposes microfinance business models for irri-
gation via “micro-leasing” agreements, supply chain partnerships, the provision
of microfinance together with agricultural development services, and a linking
of community organizations with MFIs.
Peace
Perhaps the most outlandish suggestion (so far) is that microfinance may be
a tool for creating peace and order in distressed communities. A report for
USAID argues that postconflict situations are particularly amenable to micro-
finance expansion, since people must rebuild businesses and microfinance
would bring community members back together (Doyle 1998). Stacy Heen
(2004, 31) suggests that microloans cause people to “interact with people with
whom they may have major differences or tensions,” thereby mitigating inter-
ethnic violence—a distinctly “microfinance” variation of the doux commerce
thesis (Hirschman 1977). The hypothesis could not be confirmed by Heen’s
(2004, 46–48) evidence (a “surprising refutation”), but this inadequacy did not
affect her conclusion that “the potential for . . . microcredit entities operating in
conflict prone regions is of considerable and continuing interest.”
Microfinance for Water and Sanitation: Everyone Wins
The most developed field of microfinance-provided public goods is water and

sanitation (watsan microfinance). The literature on this intervention makes
explicit that three parties are supposed to benefit (the client, the loan provider,
and the service provider) through the following mechanisms: (1) access to wat-
san is extended by “leveraging market-based resources” (Mehta and Knapp
2004, 13) from the private credit system, which (supposedly) offers poor people
a welcome opportunity to finance their own access; (2) providers (of watsan
services) recover their costs and earn a profit because households can use the
loans to pay; and (3) MFIs benefit as households repay the loan principal and
interest out of their private gains from the watsan service.
Meera Mehta (2008, 46), in an influential report for the Bill and Melinda
Gates Foundation, theorizes that linking microfinance with watsan should lead
to a profoundly positive “difference in WSS [water and sanitation services]
impacts”: “A key difference made by using microfinance is the possibility of
ensuring the sustainability of WSS and linking cost recovery for services to the
various private benefits” (emphasis added). Mehta (2008, 49) explicitly suggests
that microfinance should replace public resources since “it is possible to have
households and communities pay for the private benefits.” In terms of the bene-
fits for MFIs, Mehta (2008, 49) says water loans could be a means for MFIs to
expand into new market segments, grow their lending, acquire new customers,
and improve their performance on “social performance” indicators.
Promoters of such watsan microfinance “solutions” actively caution against
public subsidies for water or sanitation for fear of “crowding out potential pri-
vate sector resources” (Mehta and Knapp 2004, 12, emphasis added).4 “Experi-
ence in microenterprise lending has demonstrated that cost recovery should
be central rather than peripheral to the design of sustainable financing mecha-
nisms” (Varley 1995, 3). Using microfinance, water projects are supposed to
188 Philip Mader
build on the ostensible successes of MFIs that provide social value through
acts of private enterprise and that earn a return by addressing social problems
(Intellecap 2009). Inevitably, an “enabling environment” for private investment
is deemed to be crucial (Agbenorheri and Fonseca 2005, 5; Mehta, Virjee, and
Njoroge 2007).
While pilot projects have been operational at least since the turn of the mil-
lennium, the case for watsan microfinance has gained significant impetus since
the publication of the report for the Gates Foundation. This report describes
the potential for watsan microfinance projects to both expand access and reap
financial returns, as well as highlighting some challenges and “misperceptions”
on the part of relevant actors:
Only a few large MFIs show an interest in the water and sanitation sector,
because it continues to be relatively unknown and is perceived as high risk.
In order for microfinance to be scaled, then, these perceptions will need
to be changed, by demonstrating a clear business case to MFIs and other
financial sector institutions. . . . The highest potential for making a clear
business case is through individual retail loans for sanitation. This is fol-
lowed by water supply loans through retail and SME-type loans for small
water investments. (Mehta 2008, 4–5)
It is worth noting that the Gates report laments not the lack of a business case,
but the lack of awareness, similar to other publications on the subject, such as
the International Water and Sanitation Centre’s paper arguing that “the core
blockage to increased microfinance in the sector is lack of awareness of the
business case for water supply projects” (IRC 2006, 2). However, despite efforts
by organizations like USAID and the Bill and Melinda Gates Foundation or
nongovernmental organizations (NGOs) like Water.org to demonstrate that
cost-covering, subsidy-free watsan microfinance operations work, a recent
literature review reveals that subsidies are a permanent feature among extant
projects around the world (Mader 2015, 126–27, 218–14). These subsidies were
used either to entice households to participate or to entice service providers to
engage in the project. And while many projects attained one or more of their
intended outcomes, they never were able to achieve all of them: loan repay-
ment, profitability, outreach, impact, and poverty focus. The “win” for all three
actors has proven difficult to realize in practice; the next section analyzes why.
Problems
The situation in which all actors win can only materialize if the providers of
the public goods and the MFIs actually receive payments that cover their costs,
plus a certain profit margin, and this naturally depends on the loan and goods
recipients making these payments. I (2011a) have explained why this situation
is unlikely to be realizable in practice. In contrast to the supply-side issues and
misperceptions highlighted by the aforementioned authors, the actual problem
appears to lie with households not being able to enjoy their share of the win-
nings and therefore routinely not facilitating the “win” for the creditors and
water suppliers. For all parties to benefit, those at the household (“beneficiary”)
level must succeed at a three-stage process: First, decision makers in households
must be able to recognize the benefits of paying for goods, which motivates
them to take on debt in order to pay now, and reap benefits in the future. Sec-
ond, households must be able to internalize these benefits; that is, they must
privately gain enough to have made the investment worthwhile. Third, in order
to repay the loan, households must be able to capitalize these benefits; they must
be able to translate them into actual money with which they can make utility
payments and loan repayments.
A failure at any one of these stages interrupts the process leading to the
hypothesized “winning” situation. First, without households recognizing the
benefits, there will be no demand for the loans for purchasing the goods or ser-
vices; even though a loan might objectively make sense, without subjective recog-
nition by the household it will not be demanded (or not used for the intended
purpose). Second, if a household cannot internalize the benefits from the goods
or services it buys, then the household itself does not “win”: for instance, if the
water supplier should fail to deliver adequate services or if the benefits from the
household’s investment are spread out over the entire community and only very
little value accrues to that household. Third, if a household cannot capitalize the
benefits, then either the MFI does not “win” (since it cannot enforce repayment
from a destitute or otherwise unable-to-pay household), the service provider does
not “win” (because the household does not pay fees), or the household does not
“win” (since it must pay loan principal and interest, as well as service fees, despite
having incurred a financial loss). Capitalization problems occur if the benefits do
not translate into financial gains, for instance, if access to the public good did not
generate actual cost reductions or increased incomes for the household.
190 Philip Mader
The fact that the goods discussed here have historically been provided or gov-
erned publicly, and in most wealthy countries still are (Hall and Lobina 2006),
indicates that their private provision might be difficult. The goods examined
above, which are targeted by microfinance interventions—irrigation, health care,
education, electricity, even peace and community spirit—all have strong public
goods characteristics, and therefore private credit may be misplaced. The inherent
characteristics of these goods are such that they create public benefits aside from
the highlighted private benefits. These characteristics are particularly demon-
strable in the case of water and sanitation since these goods defy any categoriza-
tion as “private” for three distinct reasons (Mader 2011a).
First, according to classical economic theory, water and sanitation are often
nonrivalrous and nonexcludable goods: one person’s use does not necessarily
diminish them for others (nonrivalrous), and excluding others from their use
is difficult or impossible (nonexcludable). Excludability is a particularly salient
issue with bodies of water like lakes, rivers, or aquifers. Furthermore, water
changes its characteristics over time and space, such that water in a bottle, water
in a network of pipes, water in a river, or water falling from the sky is different in
the extent to which its benefits are rivalrous or excludable—water is sometimes
private, sometimes public, despite being the exact same H2O.
Second, privately used water directly affects publicly available water: any one
household’s access to water and sanitation resources depends on and impinges
on the underlying resources (aquifers, rivers, etc.) on which other households
also depend. Where the resources are scarce, this will require some form of col-
lective action to ensure their inclusive and sustainable management, lest they
are overused and diminished for everyone. One household’s overuse of water
can deplete the well for all, as much as one household’s inadequate sanitation
practices can pollute the environment for all (compromising groundwater,
spreading disease, etc.).
Third, household water and sanitation access is a network good with merit
good characteristics (showing positive externalities to scale). The successful
and efficient provision of water and sanitation in urban, and even peri-urban,5
areas requires network infrastructure like filtering stations, pipes, and pumps
whose investment costs are worthwhile only if enough households (in a street or
neighborhood) use the service. For this reason, all households in a certain area
tend to benefit if one additional household is “in”; if too few opt in, a provider
will simply neglect the area, and everyone loses.
The problem with watsan microfinance models is that they require
households to decide privately whether or not to contribute to the public goods

underlying the access to water and sanitation. A household must individually
decide whether to build a toilet or buy a tap connection, and it must do so at the
risk of its neighbors not doing likewise, which could render the benefits accru-
ing to that household minimal; if, for example, the local environment remains
unsanitary. (Additionally, a household must cover the cost of interest, which in
India amounts to an effective surcharge of 28 percent for a one-year loan and
represents an additional barrier.) When a household builds a water tap connec-
tion on credit, it indebts itself despite the risk of the network infrastructure not
delivering water or delivering insufficient amounts of water or delivering unsafe
water, all of which are likely if the provider is underfunded or if too much local
groundwater has already been appropriated privately (perhaps by a nearby soft
drink plant).
Real-life watsan microfinance projects underscore the problems I have out-
lined here and elsewhere (Mader 2011c). Many of the intended beneficiaries of
the project I studied, which disbursed credit for water through self-help groups
in Andhra Pradesh, either did not recognize the benefits or had trouble inter-
nalizing and capitalizing the benefits from watsan investments on credit. The
project was promoted as a unique opportunity for households, but uptake and
implementation by the intended beneficiaries were very limited and slow, indi-
cating that the households encountered barriers to their participation. Specifi-
cally, this project exposed four pitfalls that demonstrate the severe difficulties
faced in achieving the financially “winning” situation:
• First, the project’s implementation became embroiled in contentious

politics in several localities where local elites interfered, sought to
influence it to their own benefit, or otherwise simply blocked it. Watsan
microfinance projects, despite their promise of being market-based
solutions that circumvent corruption and political blockages, cannot
effectively avoid the political arena.
• Second, despite the individualistic funding approach, public sector
action was still needed to make the private investments worthwhile:
new tap connections and toilets both required a functioning infrastruc-
ture,6 but such infrastructure was often lacking or remained inadequate,
a situation that the microloans could not change because they only
channeled resources to the end users.
• Third, social issues rather than “rational,” individualistic financial
192 Philip Mader
calculations (which proponents of watsan microfinance models pre-

suppose to be the main motivator) influenced households’ decisions to
engage in the project or not, drawing into doubt the “winning” calcu-
lation. Particularly in relation to the sanitation subsidy, the households
who participated were rarely motivated by monetary gains (for instance,
savings on medical bills), but were more concerned about the risk of
rape, wild animals, and the shrinking availability of wasteland for open
defecation; others simply desired a prestigious addition to the house.
• Fourth, poorer households were largely excluded because they could
not afford the investments, even with the loan and subsidy. This major
equity flaw reduced the benefits for all. As reported in Mader 2011c,
these pitfalls are congruent with similar findings from Vietnam (see
Reis and Mollinga 2009).
Producing Success Knowledge
In contrast with these problems in theory and practice, the international donor
literature retains a positive outlook. This disjuncture between modest (if not
plainly disappointing) results and the continuously high expectations placed
on using microfinance for water and sanitation is worth explaining. Here I dis-
cuss experiences from in India in which evaluators’ highly selective percep-
tions of “impact” played a significant role in their wrongly concluding that an
operationally flawed project was a success. This section draws on fieldwork I
performed in India: working among a team of development consultants who
had been hired to evaluate a watsan microfinance project and accompanying
the implementing organization into three municipalities (two rural towns and
one metropolitan suburb in Andhra Pradesh).7 An explanation of why and how
success knowledge about watsan microfinance is produced even in the absence
of demonstrable success may help explain the continued popularity and expan-
sion of microfinance despite the problems and disappointments discussed in
this chapter specifically and this book more broadly.
The project in question was a pilot project aimed primarily at extending
household water tap connections and individual sanitary latrines among the
poorer population segments in urban and peri-urban areas of Andhra Pradesh.
It was funded by a large American philanthropic foundation that gave a grant
to a local NGO to offer a 50 percent subsidy to households willing to invest
in watsan improvements. The households, whose women were organized into
self-help groups (SHGs), were supposed to borrow the other 50 percent of the
investment cost from sundry microfinance providers; in practice, loan access
was often coordinated or facilitated by the NGO. The foundation hired an
India-based “social business” consultancy to monitor the implementation of
the program and evaluate its success at extending access to water and sanitation.
Of those households deemed eligible by the NGO, only 44 percent ever
registered for the water subsidy and just 33 percent for the sanitation subsidy.
Within one year, just 11.7 percent of 2,925 registered households had completed
the water connection and only 9.7 percent of 2,688 had completed a sanitary
improvement. Demand and impact were evidently both low, while additional
problems (politics, etc.) further hindered the project. Yet the problems encoun-
tered by the project, which I have described, and its failure to achieve a broad
expansion of access to water and sanitation, did not lead the consultants to take
a negative view of the impacts.
I worked in cooperation with the consultancy’s water and sanitation team
(a mix of relatively young Indian and European employees) and with the head
office of the NGO, which was located in a nearby neighborhood, and my first
task for the consultancy—before the problems were evident—was to design an
impact-evaluation questionnaire for the watsan microfinance project. A sur-
vey using this questionnaire was supposed to be administered to a sample of
three hundred households and provide the data for the consultancy’s report
to the foundation. It soon became evident that the project was progressing
more slowly than planned, however, and as a result the survey was first post-
poned temporarily, and then indefinitely. The consultants’ decision to postpone
(and then cancel) the impact survey was motivated partly by a concern about
finding insufficient impact and partly by their already having been paid a sub-
stantial share of their fees in advance; therefore, they had little incentive to
push ahead with rigorous methods. Of at least equal importance for the non-
implementation of the survey were two further factors: first, the consultancy’s
employees’ acute dislike of visiting the slum sites where the project was imple-
mented; second, the team’s conviction that a systematic empirical investigation
of benefits to the borrowers was simply unnecessary for reporting impact. That
is to say, the consultants held the firm belief that this project could only be a
success.
After it became clear that slow progress on the watsan microfinance project
would substantially delay the gathering of any data that could prove success,
the supervisor of the team insisted that report writing (without any field data)
194 Philip Mader
should nonetheless begin. Thus, large sections of the impact report were written
before any empirical evidence could even be collected. The consultants saw no
benefit in assessing the impacts experienced by the project’s intended benefi-
ciaries and instead probed for evidence that the project (or elements of it) could
be useful for future watsan microfinance business models—this was what they
really considered to be successful impact.
Without exception, the employees of the consultancy lacked sector-specific
knowledge of water and sanitation (mostly being fresh business school gradu-
ates) and instead were guided by the company’s fundamental precept that a
stronger private sector was key to improving water and sanitation provision (or
to addressing practically any social problem).8 To give merely one illustration
of how a lack of expertise was paired with such an ideology, none of the team
members knew about the existence of an international human right to water,
enshrined since 2002. After I brought up this right, they excitedly included this
new information in several reports they were writing at the time, as further
justification for why the business world should make inroads into watsan. They
conjectured that only the private sector could rise to the task of extending ser-
vices to the poor, and even the fact that the specific project under study was half
funded by a nonprofit donor and still had trouble getting off the ground in no
way tarnished their conjecture.
The consultancy’s reports usually began by briefly explaining the failure of
the public sector to deliver enough water and sanitation to the poor, noting the
decline in subsidies over past decades as evidence of a growing market opportu-
nity and arguing that new business models were needed. The consultancy tacitly
recognized the fact that private providers often supplied water at unaffordable
rates; the consultancy’s solution included a mixture of “social business” and
microfinance that would make private access more affordable via “bottom of
the pyramid (BoP)–specific solutions” (i.e., lower-quality services, financed by
debt). The team’s main interest in interacting with the beneficiaries—on the
very rare occasions when members actually went into the field—was to learn
which “cultural factors” might affect their demand for watsan loans and prod-
ucts. When projects encountered “cultural barriers” (such as residents being
accustomed to receiving water free of charge from the municipality), the con-
sultants argued that it was the task of “social businesses” to enact “cultural
change,” or better yet, “social businesses” could even outsource such aware-
ness raising to NGOs, allowing businesses to focus on generating profits. In the
consultants’ view, demand for water and sanitation was based on the financial
improvements that people could gain, and if the beneficiaries were not aware
of these improvements, then “cultural change” was necessary. The fact that the
poor were not, however, coming forward in droves to improve their situation
did not noticeably irritate the consultants. As the team leader explained to me,
“We know better. It’s not that the demand isn’t there, it’s just that they [the
poor] don’t know better” (field notes, February 3, 2010). The consultants com-
monly used the term latent demand, which would take aforementioned “cul-
tural change” to become real.
The NGO, meanwhile, worked on the ground. Its managers repeatedly empha-
sized the project’s pilot character and underscored their intent to find out whether
it would be possible and effective to use microfinance for extending water and
sanitation (interviews, field notes). While committed to the task, the NGO was
more open to there being a possibility of it failing, and its employees candidly
discussed the problems they encountered. The consultancy’s intention, however,
was to use the project as proof that financial actors and businesses could and
would step up to bring water to the poor. When the consultants wrote proposals
and reports (for other projects), their premise from the outset—not a finding in
the end—was that the private sector should finance the proposed intervention;
this premise in turn required the poor to pay sufficient revenues to incentivize the
private sector. The demonstrable lack of money among the poor necessitated that
microfinance be introduced into the project, no matter the long-term indebted-
ness that might ensue.9 That financial markets had to expand in order to solve
India’s evident social problems was a foregone conclusion.
Epistemic Communities and Groupthink
While banks, MFIs, and investors have a material interest in using watsan
projects to expand microfinance activities, and could therefore be biased in
assessing the impacts of such projects, the consultancy had been hired to pro-
vide an objective third-party assessment. Neither it nor its employees stood to
benefit directly (financially or otherwise) from the expansion of microlending
into water and sanitation. The consultancy’s five corporate principles included
“Maximize impact at the BoP” and “Utilize and maintain global standards
of best practices and knowledge,” yet my work with the consultants showed
that their practice of these particular principles was circumscribed by deeper
ideological convictions that restricted the conceivable and desirable routes to
said “impact at the BoP.” At a larger scale, my work with the consultants also
196 Philip Mader
demonstrated how microfinance expands not only by the grace of MFIs and
visibly powerful institutions like the World Bank, but also less visible agents
who produce incremental success knowledge that justifies new opportunities
for microlending.
During my fieldwork I received no indication that the consultancy’s aim to
help the poor and promote development was a facade or a deliberate deception.
Rather, it became clear that the individual consultants simply saw no other way
to attain their goal than by expanding access to financial services; they stuck
with this approach despite privately voicing disappointment at the lack of visible
impact from their work. In the broader social environment in which the con-
sultants were embedded (upper-class India locally, and the BoP development
community globally), markets had to be the solution for water and sanitation
problems. If the poor did not have enough money, they needed more access to
debt. The consultants simply never gathered any information or evidence that
could contradict such solutions or ignored it when it presented itself. Prob-
lems with business-driven solutions never featured in the consultants’ reports
or brainstorming sessions, other than as practical impediments to be addressed
through initiatives for “cultural change.”
The employees of the consultancy thus showed themselves to be part of an
epistemic community suffering from groupthink. Epistemic communities are
communities of recognized or self-appointed experts “articulating the cause-and-
effect relationships of complex problems, helping states identify their interests,
framing the issues for collective debate, proposing specific policies, and identi-
fying salient points for negotiation” (Haas 1992, 2). They share normative views,
causal beliefs, notions of validity, and a common policy enterprise. These commu-
nities are comparatively narrowly focused actor networks that use knowledge and
arguments to effect political change (Dobusch and Quack 2008, 11).
The microfinance community as a whole represents a transnational episte-
mic community with localized roots and offshoots such as the India-based con-
sultancy, which frames problems of and solutions to poverty in terms favored
by the community. I (2013a) have outlined why the microfinance community
may be understood as suffering from groupthink, a social phenomenon that
generates conformity at the expense of the controversy and critical evaluation
that could lead to an adequate consideration of alternative routes of action.
Irving Janis (1972) defines groupthink using eight symptoms (which affect the
larger microfinance community to different extents): (1) over-optimism and the
illusion of invulnerability (e.g., the unquestionable belief that microfinance will
expand indefinitely and defeat poverty); (2) rationalization and the discounting
of negative information, from simple ignorance to active denial of problems;
(3) a belief in the inherent morality of the group (for instance that microfinance
actors predominantly work for the “social good”); (4) the stereotyping of others,
whereby critics are branded as malicious or deluded; (5) the application of pres-
sure to those who doubt or question the group’s assumptions from within;10
(6) self-censorship, whereby misgivings and doubts are swept under the rug by
the actors themselves; (7) the illusion of unanimity, whereby silence on critical
issues is taken to signal concurrence; and (8) the presence of “mindguards,”
who dissuade criticism and protect the group’s core beliefs.11
In many ways, the water and sanitation team of the consultancy was
affected by groupthink as an office community, and in turn the consultancy
presented itself as a stalwart member of the larger microfinance community.
Within the team, the members often engaged in small acts of self-censorship,
such as not pursuing contradictory information; they sought out senior col-
leagues as advisers on how to reconcile problematic findings with the group’s
core beliefs. Team members would often remain silent about problems in group
discussions, upholding unanimity despite regularly and privately voicing very
serious doubts about (and sometimes even plain disbelief in) their work’s posi-
tive impact. Negative information was rationalized or discounted (“potential
demand,” “cultural barriers”), the morality of microfinance taken for granted,
and the possibility of MFIs or investors profiteering at the expense of others
never debated. Similarly, the consultancy acted like a good member of the
microfinance community it was embedded in, regularly predicting in its pub-
lications an almost indefinite growth of microfinance and testifying to the sec-
tor’s inherent capability to resolve a variety of social ills. When the events of the
2010 Indian microfinance crisis challenged the microfinance sector’s illusion of
invulnerability (see Mader 2013b; Taylor, chapter 8, this volume), the consul-
tancy rapidly published in defense of the sector papers that were widely cited by
the international microfinance community, rationalizing and discounting the
problems in Indian microfinance while blaming and branding regulators and
critics as corrupt and ill intentioned.
What does this identification of the consultancy and its employees as parts of
a groupthink-afflicted epistemic community add to an analysis of microfinance,
particularly regarding public goods? First, it allows us to better understand the
circumstances under which success knowledge about specific interventions like
watsan microfinance is produced: the consultants, whose task was to evaluate
198 Philip Mader
the impact of the project in Andhra Pradesh for the foundation, systematically
discounted some knowledge and prioritized other knowledge.12 Groupthink
helps explain how and why thoughtful, rational people—whose commitment
(at least at a general level) to poverty alleviation is by no means in doubt—
may be unable or unwilling to recognize the problems encountered by the wat-
san microfinance intervention. The effects of groupthink even extended to the
consultants disregarding the views of the intended beneficiaries and instead
evaluating the project’s success on the terms of their own community: the
“knowledge” that mattered most was to what extent market-based “solutions”
using microfinance could be implemented.
Second, epistemic communities and groupthink allow us to better under-
stand the role played by such idea actors in the broader spread and development
of microfinance. The consultancy, as a strategically placed knowledge producer
within the larger transnational epistemic community of microfinance, helped
to set the agenda for politicians and other actors in the development arena, such
as the foundation (and, indirectly, the NGO, as it was dependent on the foun-
dation’s money), in such a way that it quantitatively and qualitatively expanded
the reach of microfinance. Knowledge experts embedded in epistemic com-
munities articulate cause-and-effect relationships, frame debates, and pro-
pose policies of development—in this case producing knowledge that renders
market-based approaches to public goods problems more likely to be pursued
in future development projects.
Conclusion
This chapter has evaluated the use of microfinance in expanding access to public
goods by focusing on watsan microfinance projects and examining one specific
project in India. I gave an overview of the different public goods applications
of microfinance before outlining the promises and problems identifiable in the
case of water and sanitation, both theoretically and empirically. The benefits of
water and sanitation improvements—and also, to a varying extent, of the other
goods under discussion at the outset—are difficult for individual households
to recognize, internalize, and capitalize, making these goods unsuitable targets
for solutions premised on private debt. The last two sections of the chapter
explained the role of strategically placed actors in generating knowledge that
demonstrates the ostensible “successes” of watsan microfinance projects and
discussed these actors’ knowledge production in the context of their embed-

dedness in epistemic communities that show signs of groupthink.
Today, financial services are increasingly seen by donors and promoters
not just as a means for people to pull themselves out of poverty via entrepre-
neurship, but also as ensuring a better supply of public goods, from electricity
to health, education, irrigation, water and sanitation, and even peace. This
change in understanding represents a creeping privatization of goods in the
public domain through the seemingly apolitical activities of NGOs and MFIs.
Although such projects promise a win for households, service providers, and
lenders, in practice they run into problems directly linked to the nature of pub-
lic goods, which are particularly evident in the case of water and sanitation.
However, these problems may be swept under the rug in evaluations under-
taken by seemingly objective evaluators whose aim is to produce success knowl-
edge demonstrating the efficacy of market-based solutions. As the case from
India showed, evaluators are not necessarily self-interested in expanding busi-
ness opportunities—though the profitability of producing evaluations favorable
to microfinance is bound to play a role—but may be driven more fundamen-
tally by a deep conviction that only markets can resolve social problems.
With its foray into public goods, microfinance now penetrates a terrain
where its effects may be even more problematic than they are in regular entre-
preneurship or consumption lending, as it serves to privatize, commodify, and
financialize in subtle ways key goods that have been—and many say should
remain—in the collective domain. Politically, the idea that microfinance should
be used to make the poor pay for public goods, instead of direct or indirect trans-
fer payments used to make goods affordable to the poor, advances the utopian
vision espoused by microfinance father figure Muhammad Yunus (2003, 204)
that “government, as we now know it, should pull out of most things except for
law enforcement, the justice system, national defense, and foreign policy, and
let the private sector, a ‘Grameenised private sector,’ a social-consciousness-
driven private sector, take over its other functions.” The material interest of
international soft drinks companies (e.g., PepsiCo) in models like WaterCredit
is quite comprehensible.
It falls to critical scholarship not only to reveal programs’ design flaws, lest
they harm or prevent more suitable projects of development and poverty alle-
viation, but also to explain why such programs may produce negative results
even despite good intentions. The way in which the consultants, who were
centrally positioned in the watsan microfinance learning process, interpreted
200 Philip Mader
their role as generators of success knowledge is instructive. Seemingly objec-

tive knowledge agents produce “truths” about microfinance work in order to
demarcate possible new areas for microfinance expansion, from the Accion-run
Center for Financial Inclusion to organizations like the World Bank’s in-house
Consultative Group to Assist the Poor. These idea actors can exert considerable
influence on the policy process yet may be hindered by ideological blinkers and
processes of groupthink from recognizing or naming the potential risks and
failures of microfinance expansion—most importantly, the risks and failures
from the clients’ perspectives.
Notes
1. After donating US$3.1 million in 2008, the PepsiCo Foundation gave US$8
million more to Water.org to expand its WaterCredit program in late 2011; the
NGO’s co-founder is Matt Damon (PepsiCo 2011).
2. By “governance” I mean the processes, formal and informal, that determine who
has power, who makes decisions, and how actors can make their voices heard
(see IOG 2013).
3. According to their proponents, a basic (max. 50 watt) system costs around

US$400 (Samad et al. 2013, 6).
4. The routine subsidization of MFIs is, however, not held to be a major problem.
5. Even larger villages may be most efficiently served by a central network.
6. This did not apply to simple pour-flush latrines, which many households did not
consider a significant improvement over open defecation and whose future after
filling up with waste was uncertain.
7. Nowadays one of the project sites lies in the newly formed state of Telangana.
For three months between January and July 2010 I worked with the consul-
tancy from its offices in an Indian metropolis, shadowed the work of the
NGO employees in the field, autonomously conducted twenty-nine interviews
(with municipal officeholders at each of the project’s sites, local NGO officers,
self-help group leaders, politicians, managers, and academic and professional
experts), and attended over fifty SHG meetings. I gathered observational data
as an embedded participant at the consultancy and the NGO. For a report in
greater depth, see Mader 2015, 146–54.
8. This idea, in their view, applied to any sector affecting the poor in India.
9. Note that Andhra Pradesh was the site of a major microfinance debt crisis soon
afterward (Mader 2013b).
10. Sinclair 2012 provides a powerful exposé of the pressure on internal critics.
11. I have also drawn on the application of groupthink to development work by

Cooke (2001).
12. The team leader once explained to me, “I’ve been in the consulting business for
too long. You know that form should follow content? Well, actually it’s usually
the other way around” (field notes, February 3, 2010).
Chapter Eleven
The “Scandal” of Grameen

The Nobel Prize, the Bank, and the State in Bangladesh
Lamia Karim
Introduction
This chapter examines the absence of a critical global or local engagement with
the harsh realities of microfinance in the lives of poor women. The power of
Grameen Bank–style microfinance lies in its ability to showcase poor Bangla-
deshi women as model “entrepreneurs.” It is a rhetoric that has seamlessly fed
into donors’ desire to create non-Western societies that conform to Western
capitalist norms, as well as local nationalist desires to become equal with the
West. Grameen has always been celebrated as an innovation in banking for the
poor; however, I argue that the true significance of Grameen can be found not
in banking, but in the interstices of culture, kinship, and social hierarchies. I
analyze how power and politics intersected in the making and unmaking of
two global icons: Grameen Bank and its founder, Nobel laureate Muhammad
Yunus.
In Bangladesh, which is home to Grameen Bank, 2006 was a moment of
triumph and euphoria. That year, Bangladesh joined the two other South Asian
countries, India and Pakistan, that had Nobel Peace Prize winners. From the
prime minister to the beggars on the street, everyone celebrated the Nobel Prize
with festoons, balloons, songs, and speeches. The Nobel Prize had endowed
this impoverished country of 160 million with new meaning and a position of
equality with the more prosperous nations of the world. To Bangladeshis, their
country was no longer a backward and undeveloped place, but a place that gave
development ideas to the world. It was Muslim but modern; it was poor but
rapidly developing. This even became a coming-of-age discourse in Bangladesh.
In this chapter I examine the events that led to the downfall of Nobel laure-
ate Yunus, the breakup of Grameen Bank, and Yunus’s antagonistic relationship
203
204 Lamia Karim
with Prime Minister Sheikh Hasina of Bangladesh. I consider the alliances

between political elites, the international development community, and non-
governmental organizations (NGOs); their reluctance to engage in any critique
of microfinance as a panacea for poverty elimination; and the notion that Gra-
meen Bank has benefitted poor rural women, even in the face of data to the
contrary (Rahman 1999a; Muhammad 2007; Ahmad 2007; Karim 2008). In
Bangladesh, a majority of the studies on microfinance are conducted by con-
sultants hired by MFIs and development organizations, thereby narrowing the
field of critical perspectives on the adverse effects of microfinance on women’s
lives (Karim 2011, 163–83). Why have Grameen and its founder, Yunus, mesmer-
ized so many people?
The powerful metanarrative of microfinance, supported by thousands of
anecdotal success stories associated with the bank’s lending program with poor
women in Bangladesh (Yunus 1991; Todd 1996; Counts 1996, 2008; Bornstein
2005; Dowla and Barua 2006), has convinced millions around the world to
believe in microfinance as a viable instrument for the social and economic
betterment of the poor, particularly poor women. In analyzing the rise and fall
of Yunus and Grameen (see Karim 2011a; Bateman 2014a), I have examined the
Bangladeshi government’s controversial removal of Yunus as the director of
Grameen in the wake of Tom Heinemann’s documentary The Micro Debt, the
global response to the actions of the Bangladeshi government, and local Ban-
gladeshi responses to the film and the government’s action, particularly those
of intellectuals and feminists aligned with the NGO movement.1
Microfinance and NGOs in Bangladesh
After the independence of Bangladesh from Pakistan in 1971, Western develop-

ment organizations mobilized NGOs to provide services to rural people. West-
ern bilateral and multilateral development organizations saw the NGO as a
more effective and less corrupt organization than the fledging Bangladeshi state,
and they diverted funds from the state to the NGO sector for rural development
projects. In the neoliberal environment of the 1980s and 1990s, when state funds
were shrinking in Western countries, development organizations began to scale
back their aid packages and focus more on microcredit as a poverty-alleviation
tool that could eventually become self-financing through the fees and interest
charged to borrowers. From the late 1980s, microcredit took off as a viable alter-
native to direct aid with women as the key actors of economic social change. The
The “Scandal” of Grameen 205
Grameen Bank model conceptualized poor women as potential entrepreneurs

who needed small injections of cash to able to sell chickens, eggs, puffed rice,
and so on in the rural economy (Yunus and Jolis 1998; Khandker 1998; Born-
stein 2005). The bank, with its 98 percent rate of loan recovery, became the
poster child for this new development model promoted by the World Bank, the
International Monetary Fund (IMF), the Asian Development Bank (ADB), and
other major institutions.
In Bangladesh, the heartland of the microfinance movement, a majority of
NGOs use microfinance to provide capital to poor people. The fees and interest
charged by these microfinance institutions (MFIs) cover a significant portion of
their operating costs, thereby making these loan programs into self-sustaining
enterprises that can operate without any infusion of donor funds. These loans
often come with product tie-ins, such as hybrid seeds produced by multinational
agribusinesses, that the poor borrowers are forced to buy when they take out
a loan. In the rural economy, the development NGOs and the borrowers exist
in an interdependent relationship: the poor need capital, and the NGOs need
the poor to carry out their development mandates. Through this dependency,
NGOs and microfinance loans bring poor people into the ambit of global capi-
tal markets (Karim 2008, 2011b).
A Developmental Metanarrative
The 2006 Nobel Prize formalized Grameen Bank’s development success story
on a global scale, and between 2000 and 2010, the bank and its microfinance
programs began to enjoy unprecedented global accolades. Yunus was awarded
the Presidential Medal of Freedom by US president Barack Obama in 2009
and the Congressional Gold Medal by the US Congress in 2010. Books about
Yunus and microcredit were reprinted globally and reached millions (Counts
2008; Yunus and Jolis 1998). During the International Year of Microcredit 2005,
microfinance was adopted as a Millennium Development Goal (MDG) for 2015.
This publicity resulted in the proliferation of new microfinance institutions
to service the poor in both developing and developed countries. Around this
time, NGOs also began to partner with, and convert into, for-profit businesses
and banks in order to reach more of the world’s poor. Microfinance was touted
as a for-profit institution, similar to SKS Microfinance of India, that would
bring earnings to investors, as well as income to loan recipients.2 Amid this
global excitement over microfinance, the more critical voices that had warned
206 Lamia Karim
about its harmful effects on poverty-stricken people were drowned out.3 As the
Norwegian Nobel Committee members wrote in their statement, “Every single
individual on earth has both the potential and the right to live a decent life.
Across cultures and civilizations, Yunus and Grameen Bank have shown that
even the poorest of the poor can work to bring about their own development.”4
The bank’s war on poverty had reached a global scale, and its metanarrative
was uncritically embraced by many people inside and outside of development
institutions.
The Norwegian Nobel Committee’s statement on Grameen Bank reveals the
metanarrative of microcredit: “Microcredit has proved to be an important lib-
erating force in societies where women in particular have to struggle against
repressive social and economic conditions” (emphasis added).5 This narrative
about a financial instrument (microcredit) and a financial institution (Gra-
meen) weaves together poverty elimination, female entrepreneurship, rural
women’s social mobility (including increases in respect, autonomy, and work),
the weakening of rural patriarchy in a predominantly Muslim society (women
coming into the public sector to work), and the strengthening of democratic
institutions and human rights through a decline in poverty.
However, a fundamental flaw in the Norwegian Nobel Committee’s assess-
ment is its failure to theorize microcredit as a relationship of inequality between
the parties involved. A loan is a relationship of power and inequality between
the creditor and the borrower, and to reconceptualize credit as debt opens up
a new way to think about the potential pitfalls of a massive program of lending
to the world’s poorest. Another weakness of the committee’s assessment is its
lack of understanding of Bangladeshi women’s social roles in rural society. Fre-
quently, rural women have been found to hand the loans over to their husbands
to use (Goetz and Sen Gupta 1996; Kabeer 2001a). In fact, these loans have
made women more vulnerable to both their husbands, who expect them to be
a source of capital, and MFIs, which expect timely repayments without moni-
toring whether the loans lead to income-generating activities by the women
in question (Karim 2011b; Rahman 1999b). I (2011, 61–63) have analyzed this
instrumental use of rural women’s honor and shame by MFIs to recover out-
standing debt as the “economy of shame.”
As MFIs have expanded their lending programs, they have ceased to monitor
what recipients do with the loans. Instead, loan programs are measured by the
following formula: how many borrowers are enrolled, how many loans are dis-
bursed, how many loans are recovered—measurements that do not accurately
reflect the social dynamics within which these loan programs operate (Fer-
nando 2006).
The metanarrative of Grameen and Yunus is seductive and powerful because
it is a story that many in development circles want to believe: the poor of this
world can overcome their poverty through self-help and sheer hard work; they
have the capacity to transform their lives by adopting a disciplined work ethic;
and poverty is not based on structural inequalities between the Global North
and South or the various structural adjustments programs of the IMF or World
Bank or Asian Development Bank that have hurt farmers in developing coun-
tries by removing trade barriers and allowing cheaper commodities from the
West to flood local markets. Nor did it matter that the informal sector in Ban-
gladesh—the destination for almost all microcredit-supported projects—was
already reaching saturation in the 1980s (Ahmad and Hossain 1984), which
meant that any new venture would not readily find new customers but would
instead have to compete against microenterprises, ultimately leading to a zero-
sum outcome.
This metanarrative also fails to address how the state in many developing
societies (and Bangladesh is one) has not addressed issues of resource and
income distribution, instead allowing the middle classes to enjoy a consumer
culture at the expense of the poor. These and other related questions are eclipsed
in the metanarrative of the poor becoming empowered through microfinance
activities.
The “Scandal” of Grameen
The premier of Heineman’s documentary The Micro Debt in November 2010

was picked up by an online local Bangladeshi news agency that headlined its
story as “Yunus Siphoned off Tk 7bn Aid for Poor” (equivalent to US$100 mil-
lion; see bdnews24.com 2010). According to the documentary, Grameen Bank
transferred US$100 million to one of its affiliates, Grameen Kalyan, without
the approval of the Norwegian aid organization, Norad, that had donated the
funds. At that time, the Grameen brand name had fifty affiliated companies,
some of which were for profit, others not, and they all bore the Grameen label.6
Moreover, papers found in the Norwegian aid archives showed that Yunus had
written to Norad officials explaining that the money was transferred to avoid
government taxes since Grameen Bank had lost its tax-free status. Accord-
ing to the transcription of these records printed by the Daily Star (2010), the
208 Lamia Karim
Norwegian ambassador, Hans Fredrik Lehne, wrote in a memo dated Decem-

ber 3, 1997, “Yunus said that the main purpose of the transaction was to reduce
tax liabilities, and to secure funds for the members . . . of the Grameen Bank.”
Grameen Bank and Yunus had a close relationship with Norway and Norad.
In 1999 Grameen Bank and Telenor of Norway had become partners in selling
cell phones to rural female subscribers through the Grameen Polli Phone pro-
gram, which became a hugely profitable venture for Telenor in the early 2000s
(Karim 2011a). In 2006 the Norwegian Nobel Committee awarded the Nobel
Peace Prize to Grameen Bank and its founder. By 2008, however, Yunus and
Telenor faced serious issues when Telenor refused to hand over full control of
its share of 62 percent of Grameenphone to Grameen Telecom, an affiliate of the
Grameen group of companies (Wall Street Journal 2008).
This history became even more complicated due to the long-term animosities
between Yunus and Prime Minister Sheikh Hasina. Unfortunately, Heinemann’s
documentary became entangled in these political antagonisms, which gave the
US-based Grameen Foundation an opportunity to deflect attention from the
documentary’s core message about highly indebted women to the attack on
Yunus by the Bangladeshi government. Unlike the Indian state government of
Andhra Pradesh, which had clamped down on microcredit programs following
the news of suicides by farmers indebted to SKS, the Bangladeshi government
acted for political reasons. Following the revelations of the documentary, the
government did not undertake a review of the operations of the leading micro-
finance institutions in the country (Grameen, BRAC, and ASA) to investigate
what was happening to the borrowers. Instead, it focused on Yunus and his
institution. Prime Minister Sheikh Hasina, the same person who had enthusi-
astically congratulated Yunus in 2006 for winning the Nobel Peace Prize, went
on public television to call Grameen Bank an institution that was “sucking the
blood from the poor” (Burke 2011).
The first step of the government was to remove Yunus as director of the
bank, citing his age as an issue. Yunus was seventy years old in 2010, and the
mandatory age of retirement for the director of a government bank is sixty.
The government claimed that since Grameen Bank was created as a bank
for the poor in 1984 and was regulated by the Bangladesh Bank, it had to follow
the country’s banking rules. The government then formed a commission to
investigate the financial books of Grameen. Yunus was removed as the director
in 2011, and the Grameen Bank group of companies was broken into smaller
units in 2013. It remains unclear whether the government of Bangladesh plans

to nationalize the bank.
The background to the government’s actions against Grameen Bank and
Yunus is mired in the country’s political instability. In 2001 Sheikh Hasina’s
political opponent, the Bangladesh Nationalist Party (BNP), came to power,
and Hasina’s party began to agitate to have the BNP removed from power. By
2006 the political situation had forced the BNP government to resign. Escalat-
ing violence and deteriorating law and order made the military step in on Janu-
ary 11, 2007, to install a civilian-caretaker government to transition the country
back to democracy.
A month after the coup, Yunus went to India to meet Prime Minister Man-
mohan Singh to discuss microcredit policies. He also met with Indian National
Congress leader Sonia Gandhi and External Affairs minister Pranab Mukh-
erjee. Given India’s hegemony in the region, Bangladeshi leaders always meet
with Indian leaders before or after any major political change in Bangladesh
(Hindu 2007). In his interviews with the press, Yunus mentioned the “need for
new political thinking in Bangladesh for which there is an opportunity now. . . .
Clean people must take part in the elections even if it takes time to ensure that”
(Bhattacharya 2007).
Yunus’s reference to “clean people” resonated with the Bangladeshi public,
who wanted a fresh crop of political leaders. To the politicians watching from
the sidelines, however, it was an assertion of power by an NGO leader who
targeted politicians as corrupt, wanted to replace them, and had the backing of
the West. Following the coup in 2007, Yunus announced his decision to form a
political party. He later withdrew his announcement after he found little sup-
port in Bangladesh, but his actions directly challenged Sheikh Hasina and her
political party.
According to WikiLeaks, in a secret US Embassy cable sent on April 16,
2007, Yunus had told Geeta Pasi, deputy head of mission, on April 8, 2007,
that the “two ladies” had to be removed from politics (Priyo News 2011). Many
Bangladeshis believed Yunus was a supporter of the Minus Two Policy of the
military government,7 which referred to the political removal and exile of both
Sheikh Hasina of the Awami League and Khaleda Zia of the BNP. These two
women have led Bangladesh since its transition to democracy in 1990, yet they
have refused to work through parliamentary democracy; instead, whoever was
in opposition would work on the downfall of the other by calling for endless
210 Lamia Karim
hartals (the shutdown of vehicular traffic and businesses), with disastrous

effects on the economy.
In Bangladesh these two women are considered the bane of politics, and
many sectors of society tacitly approved of Minus Two (see Robinson and Sat-
tar 2012). Interestingly, Hasina was the first political leader to realize that the
NGO sector had developed into a political force outside of conventional politi-
cal parties and that it posed a threat to her political ambitions. By removing
Yunus from his position at Grameen, Hasina was able to eliminate any political
opposition to her candidacy in the 2014 elections (an election in which her
party won literally uncontested because the opposition did not participate), as
well as gain control over Grameen Bank and its affiliates. Through her actions
against Grameen, she effectively silenced the rest of the NGO leaders in the
country with respect to any political reforms.
The Global Reaction
The removal of Nobel laureate Yunus by the Bangladeshi government led to the
formation of the powerful lobby Friends of Grameen, directed by former Irish
prime minster Mary Robinson. The roster of the Friends of Grameen included
such global heavyweights as former president of the World Bank James Wolfen-
sohn, former president of France Jacques Chirac, and former president of Costa
Rica and Nobel laureate Óscar Arias Sánchez.8 The immediate purpose of
Friends of Grameen was to reinstate Yunus as director of Grameen Bank and to
keep the bank as a private entity. The larger goal was to preserve the reputation
of the global multibillion-dollar microfinance industry.
Western leaders and the media saw in Yunus a charismatic figure who
brought freedom and capitalist enterprise to poor women, particularly Muslim
women. Most significantly, Grameen Bank could transform rural housewives
into capitalist “entrepreneurs” who, in turn, would function as a bulwark against
Islamic patriarchy in a Muslim society. In support of Yunus, heads of state and
billionaire philanthropists wrote op-eds in the New York Times and the Guard-
ian. Other than Gandhi, almost no other individual of South Asian background
has garnered such widespread attention from major world leaders.
In 2011, when the Yunus–Bangladeshi government controversy was at its
height, reporters from the Wall Street Journal (Wright 2011), National Public
Radio (2011), and the Globe and Mail (2011) approached me for comment. I
always insisted that Grameen’s deeply indebted clients were the real story, but
this perspective never made it into publication. It was not the “news” these
agencies sought to report on.
Yunus made Grameen an ally of Western capital by linking to corporations
such as Telenor of Norway, Veolia and Danone of France, and Adidas of Ger-
many, and therefore the possible take-over of Grameen Bank by the govern-
ment of Bangladesh raised concerns in Western policy circles. Hillary Clinton,
Nicolas Sarkozy, Madeleine Albright, and George Schultz all spoke publicly
against the government take-over of Grameen Bank.
On a visit to Bangladesh on May 6, 2012, Hillary Clinton said in a town
hall meeting, “We do not want to see any action taken that would in any way
undermine or interfere in the operations of the Grameen Bank or its unique
organizational structure where the poor women themselves are the owners. I
don’t want anything that would in any way undermine what has been a tre-
mendous model” (Lee 2012). Missing here was the element of self-interest,
however. Leading US political analyst Thomas Frank (2016, 233–45) points out
that Clinton, already of a mind to run for president, has over the last decade
made great political capital in the United States out of her (and husband
Bill’s) long-running support for Yunus and the microfinance model’s sup-
posed ability to empower women around the globe. She has centrally claimed
that this support also reflects her very deep concern for the empowerment
of American women. And the links go even deeper. According to the Dhaka
Tribune (2016), “Grameen American, the bank’s nonprofit US flagship that
Yunus chairs, has given between $100,000 and $250,000 to the Clinton Foun-
dation, while another Grameen arm chaired by Yunus, Grameen Research,
has donated between $25,000 and $50,000.”
This almost-religious belief in the power of microfinance was echoed in the
private sector by Sir Richard Branson (2012), founder of the Virgin Group, who
wrote in an op-ed published in the Times, “Organisations such as Grameen,
and pioneers such as Muhammad Yunus, should be cherished in today’s global
economy where big business more than ever needs to be a force for good in the
world . . . government is close to gaining de facto control of an institution that
is 97% owned by its customers . . . that is nationalization of Grameen Bank.”
He then urged the British government to “join in Dr. Yunus’s efforts to preserve
the rights of poor women in Bangladesh to own Grameen Bank.” Moreover, at
no point did Branson take issue with Grameen Bank’s prior performance under
Yunus’s personal control—an important oversight given that by 2010 Grameen
Bank was clearly in a very desperate situation, with a ballooning default rate, a
212 Lamia Karim
major rise in multiple loans, and a host of other factors pointing to its potential
collapse (Chen and Rutherford 2013).
Grameen Bank has always been an exemplar of neoliberalism with its ide-
ology that anyone can be an entrepreneur, that individuals only need capital to
unleash their entrepreneurial urges, and that the elasticity of the market will
always absorb these entrepreneurs’ goods and services. To Western develop-
ment agencies, Grameen Bank demonstrated this ideology through its work
with rural women in Bangladesh and its 98 percent rate of loan recovery. In
this scenario, loan recovery equaled business success. In reality, loan recovery
takes place among complex rural social dynamics that include intimidation by
NGOs who seek to recover outstanding debt, often shaming poor women in the
process (Karim 2011b).
The Government Commission’s Interim Report:

Who Are the Bank’s Owners?
In 2011 Hasina’s government formed a commission to investigate Grameen

Bank’s operations. The Grameen Bank Commission was charged with exam-
ining the bank’s compliance with existing law. In its Interim Report, the com-
mission (Grameen Bank Commission 2013, 9) noted that Grameen Bank had
“slipped out of the oversight of the key regulatory mechanism, the Bangladesh
Bank and the Micro Credit Regulatory Authority (MCRA).” It was noted in the
report that for many years, neither Bangladesh Bank nor the MCRA reviewed
Grameen Bank operations because the former was not asked to do so until 2003,
and the MCRA did not think that the provision of the act granted them the
jurisdiction over Grameen Bank. Although “the law required the government
to exercise a somewhat direct regulatory role in the operations of the Bank, it
rarely exercised it in any form” (Grameen Bank Commission 2013, 23). Gra-
meen Bank operated as an independent entity.
With the onset of privatization in the 1990s, the Grameen Bank Ordinance
went through a number of significant changes. The board of Grameen Bank
effectively became its own regulator, and the government’s role was significantly
reduced. Grameen Bank could then undertake the “management, control and
supervision of any rural organization, enterprise or scheme for the benefit and
advancement of landless persons” and “undertake income generating projects
for landless persons” (Grameen Bank Commission 2013, 25).
In the wake of government actions to take over the bank, Yunus began to
claim that Grameen Bank had all along been a private cooperative bank that
was owned and controlled by the poor women borrowers as shareholders.
Yunus was willing to make this claim in spite of his being on record as a very
firm opponent of the cooperative model (Bateman and Novković, chapter 6,
this volume).
The Grameen board of directors includes nine women who are “elected”
by the borrower-shareholders and three members who are appointed by the
government. Further undermining the bank as a cooperative, however, is the
lack of any evidence of actual balloting taking place anywhere in the “electoral
college” (Grameen Bank Commission 2013, 48), a point that I (2011b, xiii) have
also noted. In fact, the local branch manager selects a group leader who is then
nominated to the area office. From there, she is nominated to the zonal office
for another round of vetting by Grameen officials. Finally, senior Grameen offi-
cials select the most appropriate candidate based on her suitability as a director
(Grameen Bank Commission 2013, 49). Thus, it is Grameen officials, and not
the women borrowers, who decide who gets to be on the board. The commis-
sion reported that in the meeting notes of Grameen Bank, these women’s voices
were rarely recorded. The commission found that if the women spoke, it was
usually to ask for income for their shares.
Another important issue relates to the shares that originated from the savings
accounts of the borrowers. Each Grameen Bank client bought a single share for
Tk100 (approximately US$1.25 in 2012), using money from her savings account.
However, the bank’s ordinance did not provide the shareholders any right to
receive dividends or income from any of Grameen Bank’s activities (Grameen
Bank Commission 2013, 32). Nor could the share be sold. If a person died, left
the group, or was removed, then the share reverted to the group members at a
loss to the original shareholder. The share was sold to a new member, but it was
unclear who received the proceeds from that sale, the bank or the former share-
holder, especially in the case of death of the primary shareholder (Grameen
Bank Commission 2013, 44).
The commission’s report found an internal Grameen document from 1999
that revealed 65 percent of borrowers did not understand what it meant to be a
shareholder. During my research in 1998 and 1999, I found that none of the bor-
rowers I met had any idea of what it meant to be a shareholder. All they could
tell me was that money was taken out of their loan and that they were provided
with a piece of paper (the share document).
Although untrue, the idea that Grameen Bank’s women borrowers were
214 Lamia Karim
active owners of the bank nevertheless began to gain serious traction due to
the widespread and uncritical support for Yunus in the global media. Predict-
ably, Yunus’s viewpoint was taken as the truth by longtime supporters such as
Nicholas Kristof (2012), David Bornstein (2012), and others who wrote about
the “theft” of Grameen Bank from its poor women shareholders in the New York
Times, a narrative that helped to keep the myth of borrowers as shareholders
alive in the global media.
Local Response
Bangladeshi NGO leaders know how Grameen operates, but they were con-
spicuous in their silence over the question of shareholders (see Guardian 2012).
Instead, their repeated descriptions of Grameen’s borrowers as shareholders-
owners turned myths into facts in the public imagination. Ordinary Bangla-
deshis not identified with the NGO lobby also felt strongly about the treatment
of Yunus. Many felt that the nationalization of Grameen Bank would harm the
institution and that corruption would creep in. People on the left who had spo-
ken harshly of Grameen Bank’s close ties to corporations said that they did not
endorse the actions of the government, which were triggered by politics and
not by an ethical concern for the poor. Most importantly, the Bangladeshi pub-
lic views the government as far more corrupt than the NGOs, and NGOs have
accomplished much. Among NGOs, Grameen is considered an honest organi-
zation working for the benefit of poor women.
The Micro Debt was shown multiple times on local TV channels, and the
Grameen Bank Commission made all its reports available to the public through
the Internet. In my conversations with local people, a prominent person in the
NGO movement said to me, “These things happen, so what. You must look at
the broader picture” (interview with NGO leader, 2011). The “broader picture”
refers to the fame and recognition that Yunus brought to Bangladesh and the
positive work that NGOs have done in the country. In response to the claim
made in the documentary about the unauthorized transfer of money, one NGO
activist said that the transfer had happened in 1996 and that Yunus was simply
trying to build his organization. While it is important to recognize that Gra-
meen Bank has brought fame to Bangladesh, why is it that the borrowers’ con-
cerns are absent in these public discourses?
What is revealing from these conversations is that people in Bangladesh did
not discuss the contents of Heinemann’s documentary; instead, they discussed
the political situation surrounding Yunus and Grameen. The Grameen Bank
Commission’s Interim Report was given zero coverage in the Western media
that had published many reports on the ousting of Yunus from Grameen Bank.
For Bangladeshis, Yunus the Nobel laureate was far more significant than the
distressed women shown in Heinemann’s film or the misconduct of Grameen
Bank as exposed by the Grameen Bank Commission.
This indifference of the middle classes toward the poor borrowers indicates
what counts as significant to this social class. What matters is the stature of their
first Nobel Prize winner, who has given their country and, by extension, the
middle classes world recognition. Their country is no longer a place of natural
calamities but the home of a Nobel laureate who is respected all over the world.
Similarly, the complete refusal of the Western media to engage with the Gra-
meen Bank Commission’s Interim Report is symptomatic of their concern to
preserve one of the very best idols of capitalism, and one they had a hand in
creating.
Bangladesh has a small but organized feminist movement made up of mem-
bers of the political elite (see Huda 1997; Azim 2005). Within this group are
feminists who are urban and liberal and who have close ties with NGOs and
Western development institutions. In personal communication, some of them
called Yunus “the most important Bangladeshi person known in the West,” and
that mattered more than the indebted poor women in rural Bangladesh. Lead-
ing intellectuals said that Bangladesh’s global image was being tarnished by the
government’s removal of Yunus from Grameen and the breakup of the bank’s
affiliates. Thus, the controversy centered on image, brand recognition, and
global prestige, not the poor women on whose backs this institution was built.
For these feminists, Yunus is an ally of women and someone who has given
feminists and their work with women global recognition. Their actions and dis-
course (“Yunus is the most important Bangladeshi known globally”) were part
of a bhadrolokh (middle-class Bengali) culture in which feminists identified
with Yunus as bourgeois subjects who wanted to build a liberal democracy with
women’s rights akin to those in Western Europe. While one cannot condone the
treatment meted out to Yunus by the Bangladeshi government, it should not be
forgotten that the middle classes in Bangladesh are more concerned about the
tarnishing of the country’s global reputation than about the poor woman who
loses her home when she cannot repay the loan from an MFI.
Despite the revelations about Grameen’s many unorthodox practices, a
majority of prominent feminists have stood by Yunus and the bank. This
216 Lamia Karim
reluctance by feminists and broader intellectual society to critique NGOs’ work

stems from a belief that NGOs can perform better than the state and that the
Bangladeshi state is fundamentally corrupt. This point is true given that the
Bangladeshi NGO sector has performed far better than the state in provid-
ing resources to rural people, especially in the areas of primary education and
reproductive health and immunizations. In the 1970s, Western donors created
the NGO as an aid-delivery alternative to the Bangladeshi state, which they saw
as inefficient and corrupt. Over time, this relationship between the NGOs and
the donors became mutually beneficial. The donors needed an efficient mecha-
nism to deliver their market ideologies, goods, and services to the rural poor,
and the NGO needed the resources of the donors to carry out its work. The
NGO sector benefitted hugely in terms of resources that were not available to
the state. Consequently, the middle class in Bangladesh came to view the lead-
ing NGOs (Grameen, BRAC, ASA) as less corrupt than the state and continues
to view NGOs favorably.
Grameen Bank and Yunus operate as cultural icons that endow Bangladeshi
elites, whether at home or abroad, with national pride. For feminists, Grameen
functions as symbolic capital that they can instrumentalize in their activities
with donors and in international conventions and treaties. But this refusal to
criticize Grameen is also based in careers and reputations that have been devel-
oped by working for the ideologies and values that these Western-aided NGOs
promote.
Grameen Bank and development NGOs represent modernity and capitalism
for the rural poor. A majority of feminist organizations in Bangladesh operate
as NGOs and receive funds from donor organizations to carry out their pro-
grams. NGOs are also interdependent organizations: smaller ones depend on
the largess of bigger ones. Within the NGO culture, one understands implicitly
that one should not speak out openly against Grameen Bank, BRAC, ASA,
and other large NGOs for fear of losing the support of their sponsors. In 1992
and 1993, NGOs and their women borrowers faced nationwide attacks from
the rural clergy (Shehabuddin 1999; Karim 2011b). Since those attacks, NGOs
have withdrawn from social consciousness–building programs that organized
landless farmers (except in the case of Nijera Kori—see Paprocki, chapter 15,
this volume) and instead have turned to microfinance and service provisioning,
which has led to a pacification of NGOs and their leaders.
By the end of the first decade of the 2000s, it had become clear that while the
state may outsource rural economic development activities to the NGO sector,
it is less willing to tolerate NGO leaders’ political aspirations, especially if they

challenge the political party in power. If we are to take the lessons from the
Grameen controversy, what we see is a shift in the evolution of the economi-
cally developing state. In the 1980s and 1990s, this state was heavily depen-
dent on foreign aid and had to concede to the mandates of Western nations.
In the intervening years, remittances from overseas labor and revenues from
the export-oriented garment sector have grown, offering alternative resources
to the government. Unfortunately, the poor women, who have become highly
indebted through microloans and who should remain the focus of any inquiry
into the benefits of microfinance, have been forgotten.
Notes
1. This chapter builds on my long-term ethnographic research in Bangladesh

(1995–present) and interviews in 2012 and 2013.
2. Yunus had remade Grameen Bank into a for-profit institution in 2001 through
the Grameen Bank II project. He publicly rejected SKS’s for-profit-only model
because social concerns must meet one’s profit motives (see Yunus on social
business; Thirani 2012).
3. Muhammad (2009) has written about the negative effects of microfinance in

Bangladesh.
4. See http://www.nobelprize.org/nobel_prizes/peace/laureates/2006/press.html.
5. Ibid.
6. Grameen Bank has over fifty companies in its group.
7. These allegations are rumors circulating in Bangladeshi society. I have no

knowledge of any role played by Yunus.
8. See http://www.grameencreativelab.com/news/friends-of-grameen-website
-online.html.
Chapter Twelve
Agricultural Microfinance and Risk Saturation
Charlotte Heales
Introduction
Smallholder agriculture is central to the development agenda. In February 2012

Bill Gates declared, “If you care about the poor then you care about agricul-
ture” (Gates Foundation Media Center 2012). The Food and Agriculture Orga-
nization (FAO 2012) estimates that smallholder farmers make up 90 percent
of the world’s “extreme poor.” Smallholders have traditionally been consid-
ered “underserved” by credit services, as the costs of administering loans in
rural environments have not made them appealing candidates for the financial
services market (Morvant-Roux 2008). It is perhaps unsurprising, then, that
microfinance institutions (MFIs) in South America, sub-Saharan Africa, and
Asia have sought to create products that can meet the needs of smallholders.
Such attempts have been trumpeted by policy organizations such as the Interna-
tional Fund for Agricultural Development (IFAD) and the Consultative Group
to Assist the Poor (CGAP; IFAD/CGAP 2006). However, some aspects of
microfinance, particularly the risk inherent in credit, make it an inappropriate
way of promoting agricultural production without output or market support.
Certainly, my examination of two very different Malawian contexts shows that
agricultural microfinance is having difficulty performing in the way that it was
envisioned.
Agriculture is an unstable livelihood rife with risks, and yet smallholder
farmers are considered to be “risk averse” (Boussard 1992; Maclean 2013), a
characteristic that has often been frustrating to those encouraging the uptake
of new technologies or increasing smallholder investment in land. However,
this risk aversion is hardly surprising when one considers the fact that pre- and
postproduction conditions (weather, soil, markets) make smallholder farming
219
220 Charlotte Heales
a precarious livelihood with exceptionally high stakes (Bryceson 1996; Bryce-

son, Kay, and Mooij 2000; Frankenberger et al. 2003). When innovation fails,
smallholder farmers may be left unable to feed themselves or their families.
Agricultural communities have not been seen as good investments by orga-
nizations offering financial services because rural populations are generally
difficult to service, given the inherent institutional problems with lending to
isolated populations. But the subsidization of rural credit by governments has
also proved controversial, and some have argued that interfering in the credit
market in this way ultimately impedes the establishment of viable commercial
rural credit markets (Robinson 2001; Von Pischke, Adams, and Donald 1983; see
also Bateman, chapter 1, this volume).
It could be considered strange that microfinance is being used to promote
agriculture since credit, when used for higher-risk investments, would seem
likely to increase risk rather than mitigate it. In the discourses around micro-
finance, however, credit is seen as a way of easing the risks that poor people face.
Neil McCulloch and Bob Baulch (2000) argue that through the mechanism
of income smoothing, microfinance allows individuals to react to economic
shocks and spread the costs over time, thus making them manageable. In agri-
culture, risk is not a one-time event; rather, it pervades the livelihood itself.
Frank Ellis (1998) notes the difference between rational risk management and
coping strategies. While coping mechanisms are reactive, risk management is
about planning for the future. Using microfinance for income smoothing is
essentially to use it for consumptive purposes, whereas including microfinance
in a livelihood strategy is to use it for investment. In the first scenario, the
risk becomes shock, and then the loan is used. In the second, the loan is used
whether or not the shock comes; the money is spent, and interest is owed. If
the shock does occur then the investment has not only been wasted, it has also
created an additional liability. By encouraging risk-taking behavior—in this
case investment in agriculture that results in debt—microfinance may actually
increase the level of risk faced by farmers.
This chapter will explore how microfinance is used in two locations in
Malawi to shed light on this apparent tension between the aim of microfinance
to support rural agriculture and the problems inherent in the microfinance
lending model. With the literature on smallholder risk in mind, I will examine
whether the program is a success on its own terms: whether it is in fact provid-
ing credit to financially excluded poor women who invest in agriculture. I dem-
onstrate that the risks associated with agriculture affected the implementation
Agricultural Microfinance and Risk Saturation 221
of agricultural microcredit products, making it difficult for them to target

intended users. Thus, credit programs that did not address risk and factors asso-
ciated with macroeconomic instability, like market availability, were not able to
serve the needs of the communities I examined. Furthermore, this failure to
meet the needs of clients has been invisible to the MFI due to the way in which
the program has been adapted and used by the community.
Malawi could be considered a paradigmatic example of a rural development
context, which, along with the penetration of international nongovernmental
organizations (NGOs) and MFIs, makes it an instructive context in which to
explore agricultural microfinance. Both places I studied exist within the insta-
bility of the Malawian economy, which creates in both a high degree of risk and
uncertainty. Whereas each of the communities has its own localized economic
conditions, each one is, to some degree, a product of this wider economic envi-
ronment. And whereas superficial differences can be identified in the way each
community has opted to engage with the loan, an inability to engage with the
loan on the MFI’s terms is common to both environments.
The Malawian economy has, since independence, been subject to quite
severe periods of instability. The country’s currency has been problematic since
then, and the Malawi kwacha has often gone through periods of overvaluation
followed by severe devaluations (often at the recommendation of the inter-
national community). In May 2012, early in the second reference year of this
study (March 2012–February 2013), the country floated its currency, following
recommendations from the International Monetary Fund (IMF 2012), causing
the kwacha to devalue by 33 percent almost immediately. This decision caused
not just high national inflation (between 20 and 30 percent), but unpredict-
able local inflation that completely outstripped the national figures, as dem-
onstrated by the localized commodity-specific inflation observed in this study.
This macroeconomic instability contributes to a huge degree of uncertainty for
rural populations. Produce price inflation can be beneficial to some farmers,
particularly when inflation is uneven across districts and across all goods and
services. Understandably, however, this instability further entrenches a sense
of risk aversion.
Malawi has few exploitable natural resources and is highly dependent on
imports, particularly petroleum-derived products (including some fertilizers).
An underdeveloped industrial sector and lack of secondary production mean
that Malawi is highly dependent on raw production, particularly on raw agricul-
tural production. The small size of the country and the fact that it is landlocked
also create problems of scale and competitiveness in the global marketplace.

Malawi’s most successful export has been tobacco: it is the world’s third largest
producer of tobacco and the most tobacco-reliant economy in the world (IMF
2015). In the face of fluctuating tobacco prices, this dependence has caused sig-
nificant problems.
Malawi has had a fraught relationship with the international financial insti-
tutions (IFIs) whose attempts to restructure the economy through the 1980s
and 1990s focused on painful currency flotations and the removal of input and
fertilizer subsidies and forced the decapitalization of the Agricultural Develop-
ment and Marketing Corporation (ADMARC), a parastatal created to promote
volume and quality of agricultural exports and to perform a price stabilization
role. Fertilizer subsidies were a key area of contention between IFIs and the
Malawian government throughout the 1980s and 1990s, when they were peri-
odically put in place by government and then removed at the request of IFIs
(Harrigan 2003). It was not until the food crises in the first half of the 2000s
that the IMF decided to drop objections to the subsidy, which has accounted for
a large proportion of the Malawian budget since.
The Farm Input Subsidy Programme (FISP) continues to be contentious.
Malawi has needed to be assisted in funding the program (by donors such as
the Department for International Development and the Norwegian Agency for
Development Cooperation [NORAD]) a number of times since it was reintro-
duced, including in 2006, following food crises in 2001 and 2005. Research
indicates that the program is subject to some irregularities in terms of distribu-
tion and leakage (Dorward et al. 2008; Ricker-Gilbert and Jayne 2008). Despite
these issues, the program is a political nonnegotiable in Malawi because of the
improvements that have been seen in food security since its implementation.
Malawi went from a 43 percent national food deficit in 2005 to a 53 percent
surplus in 2007 and as a result was able to reinstate regional maize exports
(Denning et al. 2009).
The controversy around FISP exemplifies tensions, familiar to many devel-
oping contexts, between attempts by national governments to mitigate the per-
nicious effects of the free market, particularly in agriculture, and the demands
of IFIs. Driven by Washington Consensus parameters, the IFIs have failed to
consider output markets, input delivery, and seasonal finance (Dorward and
Kydd 2001), and they have established the belief that credit alone, with no
further intervention, could and indeed should be enough for people to “pull
themselves up by their bootstraps.” Microfinance, in such contexts, has been
promoted as a way to mitigate the harsh effects of the free market while itself
being a financially sustainable market-driven intervention. By looking in detail
at two rural Malawian villages that include households that have used an agri-
cultural microcredit product, I build up a picture of what factors influence the
success or failure of such products, along with the contextual complexity of the
risks attached to taking out a microfinance loan.
Methodology
The MFI examined here follows a group-lending model. No collateral is taken,

but an initial savings period is required, and those savings are used to pay down
debt in the event of default. The groups are typically made up of around twenty-
five individuals from across villages, and the loans are only given to women. In
the event that an individual cannot pay back the loan, the rest of the group must
pay the loan back on her behalf, or else the whole group loses the ability to take
out loans in the future.
This MFI supports farming the dimba—the irrigated land—because higher
default rates result when credit is used to farm nonirrigated land. Also, the
dimba is often used for the cultivation of cash crops and so is geared toward
entrepreneurial agriculture. The first agricultural loan is given around October,
at the beginning of the agricultural year, and at the same time that the Malawian
government dispenses fertilizer subsidy coupons. A grace period is allowed for
the growing season, then the loan is paid back in installments. Clients are given
a few hours of “training” wherein a loan officer explains how the loan should
be used and which cash crops should be grown. A second loan is available
to clients in July to encourage them to make use of two growing seasons and
therefore increase the productivity of land. The model itself demonstrates that
the underlying aims of microfinance include not just financial inclusion and
poverty reduction, but also an increase in agricultural productivity. A failure to
reach poor, financially excluded farmers can be seen as a failure of this product
to live up to its goals.
I collected data from two villages over two years. In order to get a full pic-
ture of people’s livelihoods—key to understanding the development context—
I adopted a mixed-methods design that enabled multiple factors from land
ownership to the gathering of nuts and berries to be taken into account. I used a
quantitative survey of income and crop production in the form of the individual
household method (IHM) in order to measure in detail the factors involved
in subsistence, production, and survival in a rural southern African context.1

The survey captured income both in cash and in households’ own agricultural
production and collection of wild foods.2 In addition to the survey and the con-
textual quantitative data, I also utilized a number of qualitative methods such as
focus groups, interviews, and participant observation in order to understand in
more detail the local context and the way that the key issues here—credit, risk,
and production—were viewed by villagers.
The households I examined were not just those of clients. I also looked at
communities as a whole to see whether the poorer members were being tar-
geted. In Village A, I surveyed nineteen of twenty-two households.3 In Village B,
I took a stratified sample of the fifty-two households. I combined surveys with
key informant interviews, semistructured household interviews, and focus
groups to create a picture of client and nonclient livelihoods. I used these quali-
tative data to explore issues like perceptions of the product across the commu-
nity, the social role of the loan, and the livelihood challenges faced by different
households. This wide-ranging methodology sheds light on the structure of
local markets and the value chain beyond the surveyed households, as well as
reasons for choosing or not choosing to take a loan.
The data collected show that the context in which credit, savings, and groups
are working is of extreme importance and needs to be an intrinsic part of the
evaluation and monitoring of microfinance. The role that microfinance plays
cannot always be ascertained by income data alone, and the tendency among
the microfinance community to rely on income data and focus heavily on clients
rather than communities warps our understanding of how loans are adapted in
different circumstances and stymies opportunities to better service communi-
ties. This neglect of context has meant that the MFI is disconnected from the
communities it serves.
Case Study Locations
This study was conducted in two villages in different areas of Malawi, one in
Mzimba district and one in Ntcheu district. Although both of these communi-
ties are heavily reliant on agricultural production, they have crucial differences
that affect how the loans function, in particular with regard to the MFI’s tar-
geting of agricultural producers and mitigating the risks involved. The key dif-
ferences include the availability of land to rent, the availability of employment
opportunities, and the perishability of produce from each area. In both places
we looked to see whether or not the product was able to engage with those
individuals who most closely aligned with the client “blueprint” that the MFI
developed. In particular, I examined the loan use and client base in these two
very different villages.
Village A is located in Mzimba district, close to the Zambian border. The
most common cash crops grown include tomatoes, beans, and onions. Land
is abundant, and the market for land rentals is small. The village is located
approximately three kilometers from a township—and the district govern-
ment office—that holds a weekly market where agricultural produce is sold.
The households in this village sell to middlemen once a week in one of only
three locations: the village, the nearby market associated with a local hospital,
or the township market. Decisions on how to sell produce appear to be based
on a risk assessment made by each household. Middlemen will generally buy
at a lower price, but all the produce will be sold, which is not guaranteed at the
two markets. Traveling to the township market requires transportation, such
as an ox cart; however, the prices there can, in certain circumstances, be better
than those found at the hospital market (which serves a smaller population and
sits on a dirt, rather than tarmac, road). The main problem with selling at the
township market is the fact that oversupply can lead to depressed prices. Those
selling tomatoes are likely to be among fifty other stall holders selling the same
produce. Because this product is seasonal and perishable, the market is often
glutted and prices negatively affected. Prices are also subject to the wider con-
ditions of the Malawian economy. While the township market is well known for
its agricultural produce, its location does not produce enough traffic for storage
or secondary production infrastructure to have developed.
Village B is located in Ntcheu district, about one kilometer from Ntcheu
township. The most common cash crops grown include groundnuts, soya, sweet
potatoes, and Irish potatoes. Unlike the Mzimba village, land is not so widely
available, and a rental market has developed. This market offers an income for
those households that wish to engage in businesses outside of agriculture but
which have land assets available to them. The cash crops that tend to be grown
here are more easily stored than the perishable cash crops grown in Mzimba.
The close proximity of Village B to the Ntcheu township has had a num-
ber of effects on livelihoods in this village, the most profound of which is the
greater number of employment options available to households. Whereas in
Mzimba only the local hospital offers salaried employment, the Ntcheu house-
holds have more varied employment options that include local institutional
work (in schools and hospitals), administrative work, and other manual and
nonmanual jobs. The rural area surrounding this village is also more densely
populated, and as a result, this area can sustain, for example, two beer sellers,
whereas Mzimba village can sustain only one. However, competition for work
is also very high. Unlike in Mzimba, agricultural income is not seen as inferior
to salaried employment, and the market issues that are problematic in Mzimba
seem to be less of an issue in Ntcheu. More markets are available here, and the
Ntcheu township is home to a number of company warehouses that buy up
produce for food production, apparently because of the fortuitous position of
Ntcheu, which lies directly between Lilongwe and Blantyre.
Instability, Risk, and Group Membership
In both Village A and Village B, data showed and clients confirmed that macro-
economic insecurity was a crucial factor governing group membership and loan
use. This suggests that the MFI may be exacerbating rather than mitigating the
risks associated with agricultural production in the unstable Malawian context.
In Village A this macroeconomic instability caused the program to be
rejected by those who were reliant on agriculture for income. In the first year of
this study, six members of the MFI lived in this village, compared to ten during
the previous cycle. In the following agricultural year, four of these six left the
loan group and were replaced by two, meaning that only four individuals were
microfinance clients in the year following. Attrition was higher among those
individuals who were more reliant on agriculture for their income, whereas
those who joined were less reliant on agriculture if, indeed, they participated
in it at all. In the agricultural year 2011–2012, MFI client households derived
an average of 30 percent of their income from growing crops. The clients who
opted to leave the group received an average of 37 percent of their income from
growing crops, and those who stayed made an average of 16 percent through
their own agricultural production. In the following year, the clients who joined
the group were even less reliant on agriculture, and in the agricultural year
2012–2013, clients of the group received an average of only 7 percent of their
income from agriculture.
In interviews conducted with individuals who left the group and with non-
client farmers, I found that credit amplifies the already high level of risk asso-
ciated with farming. In Village A in the first year, prices for produce, particularly
tomatoes, were lower than usual, and one of the major concerns reported by
interviewees was the lack of a market for produce. That first year, the price for
tomatoes—the most prominent cash crop in the village—was MK50 (Malawian
Kwacha) per kilogram at its lowest and MK3,000 per kilogram at its highest.
Clients who left the group appeared to be those more heavily reliant on agri-
culture for income. Farmers stated that when prices were good, a loan might,
under the right conditions, be useful. When farmers take out a loan, however,
they do not know if ecological and market conditions will produce enough of a
boost in productivity such that the loan will pay for itself. When conditions are
poor, a loan increases the impact of negative conditions because farmers must
ensure that they can maintain themselves and their income-generating activi-
ties over the next year while also repaying interest. This effectively intensifies
the risks associated with agriculture.
In the second reference year, when the village experienced inflation in
produce prices (tomato prices rose to between MK80/kg and MK3,500/kg),
farmers did well, and yet the farmers that had left the MFI did not seek to
return because they could not guarantee that those prices would remain high.
None of the underlying risks associated with agricultural production had been
resolved. One farmer said, “I would not go back to microfinance because I have
tried it and it did not work for me. The markets are better this year and there is
little employment around so being a farmer right now is better but I don’t know
what will happen in the future and I can’t guarantee from the beginning of
the loan how things will progress, particularly because input prices are rising”
(mh6, 2013). Another added, “I am happy to be a farmer at the moment. Things
are good and I’m selling at a good price. Next year, I don’t know” (mh17, 2013).
I did not observe the same level of client attrition in Village B. While client
attrition was a risk-mitigation strategy in Village A, in Village B risk was miti-
gated by the group leadership engineering the group from the beginning to
include lower-risk clients. This strategy involved the exclusion of many pro-
spective clients who fit the “ideal” of the MFI but who were also perceived as
“high risk.”
In Village B the microfinance group is relatively stable in size, and my sur-
vey did not reveal any attrition. At first it seemed that the stability of the group
might be a result of more opportunities in this village. Indeed, the village has
more markets, significantly more traffic, and far more employment options.
The group members move fluidly between wage employment, petty trade, and
agriculture. This movement could make people feel more secure: if a particular
livelihood strategy fails, they have enough opportunities to feel confident of
repaying their loans.
The most significant reason that Village B has seen lower attrition, however,
is the group leadership’s engineering of a lower-risk group. Part of the reason
that microfinance models have adopted group lending is because this lending
system effectively transfers the screening and monitoring of borrowers from the
MFI to the group. This system has been seen as an effective way of overcoming
adverse selection and repayment issues and is often perceived as a positive side
effect of the group-lending model (Morduch 1999). But a contradiction unfolds
when MFI groups established to support agricultural production explicitly
exclude those involved in agriculture, who are seen as presenting an unaccept-
able risk to the group.
During interviews and focus groups with clients, it became clear that group
members also see loans as a source of risk. They are concerned not with the
indebted individual, but with the risk that debt poses to the group as a whole,
since they are liable in the event of a failure to repay. As a result, the loan group
has been strategic in its selection process and only selects those people thought
to be able to repay the loan or those people with a close enough relationship
(either as family or friend) to the wealthier members of the group that their
repayment can be assured. Thus, in Village B a disproportionate number of
clients are drawn from the same kinship group. This family encompasses
numerous households in the matrilineal village and consists of a matriarch,
her sister, and their daughters. The eldest daughter (nh24) and the matriarch
(nh118) are, respectively, the first and second wealthiest people in Village B’s
stratified sample. Of the sampled loan group, 50 percent were wealthy by the
standards of the village, and the other poorer members were those whom the
wealthy members were happy to endorse. Those poor members of the com-
munity without family connections were consciously excluded from the group.
Although nh34 was from the poorest of the households in the community,
she was apparently included in the group because she was one of the founding
members of the group and because she maintained a close friendship with the
group leader and her daughters. Nh34 argued that access to credit can help to
smooth out the costs of large purchases, but she complained of how hard it can
be to repay a loan and of the stress that comes with taking a loan in periods of
economic flux: “Life is expensive, it’s not possible to predict prices for com-
modities which just get higher and higher. The price of my produce goes up at
the moment but we’ve also seen it go down. . . . My husband is sick and cannot
work and so I am happy that the prices are higher for now” (nh34, 2013).
Certainly, some members of the village were prevented from taking a loan by
the group, but Village B also contained many nonclients who were dependent
on agriculture, who fit the client blueprint of the MFI very well, but who had
no desire to take out a loan:
If you have credit then you never have peace. (nh27, 2012)
It seems to me that access to credit is not necessary. People use it to buy

things but if they have enough income to make the repayments then they
have enough money to save and buy later. That way you know if you can
afford it before you pay and you don’t have the stress around repayment.
(nh35, 2012)
[I won’t take out a loan because] I can’t guarantee that things will go well
for me and that I’ll be able to pay it back. (nh49, 2012)
Interestingly, Villages A and B dealt with risk quite differently but ended up
in a similar position: disproportionately populated by clients from households
with steady or high incomes, not often reliant on agriculture, and less at risk of
defaulting. The MFI clientele of Village A shifted in the second year so that all
client households had a significant income-generating activity outside of agri-
culture. In the case of two client households, this activity took the form of wage
employment in the local hospital. (These positions provide some of the only
stable annual incomes available to those living in this community, and such jobs
are highly sought after.) These two households are in the top quintile in their vil-
lage in terms of disposable income.4 The remaining two client households were
engaged in beer brewing and tin smithing. In the village, 43 percent of the aver-
age total income was provided by agriculture, but among second-year clients,
the total was only 7 percent. Between the first year, when she did not have a
loan, and the second, when she did, one client experienced an increase in raw
disposable income of 96 percent. Microfinance advocates might be encouraged
by this evidence; however, this household (mh15), though among the poorer
in the community in year one, experienced an increase in cash transfers of
68 percent. Further, mh15 also works at the local hospital. In the second year,
this client received a promotion at work and saw her salary jump to MK162,000,
almost double her salary of the year before. Although the household did go
from not participating in agriculture at all to growing and selling groundnuts,
this work had a negligible effect on the welfare of mh15. One might ask why this
household took out a loan at all.
Loan Use
In fact, mh15 elucidated her reason for taking the loan during our interview.
The client had two loans during the second year of the study. She used the first
to buy a mattress and put the money from the second in the bank. While a
mattress is a standard “consumption” purchase (though it does not fit with the
“agricultural” purpose that the MFI stipulates), saving loan money in a bank is
more unusual when one considers that clients are supposed to be financially
disenfranchised and that the MFI interest rate is higher than any rate the bank
would give savers. When asked why she opted to take out a loan, the client stated
that she simply wanted to be part of the same group as her friends. Mh15, as a
relatively wealthy individual, was prepared to view the loan interest as a “mem-
bership fee” to a club that she wished to be a part of. With her steady income,
she was not put at risk by the loan, nor did it represent an opportunity to invest
in or improve her livelihood. She viewed it as a service to be bought.
Mh15 was not the only person not to use her loan for agriculture. In Vil-
lage A, uses of the loan were split between investment in a nonagricultural
business and consumption. One client was using the loan to service debt she
had accrued from taking out other loans. In Village B, many reported using
their loans for consumption, a few said that they used the loan to buy inputs,
and no client reported purchasing inputs as the only use of their loan. The
group leader’s household used the loan of MK50,000 (the largest loan amount
that the MFI allows) to pay one term of school fees at an expensive and, by
local standards, prestigious private school. Others bought new roofs, capital-
ized retail businesses, or used the loan as an alternative to saving for large
purchases. Importantly, the majority of members of both communities were
not of the opinion that the poor should use a loan to capitalize an agricultural
business.
Mh15 was also not the only individual to cite group membership as a reason
for joining the loan group. This phenomenon was reported in both villages but
was most noticeable during dialogues on microfinance in Village B, which is
fraught with tensions. Much work has been done on the role of social capi-
tal in development generally and in microfinance particularly (Kabeer 2001b;
Mayoux 2000; Maclean 2010). Social relationships in microfinance groups are
complex, reflecting the needs and norms of the community. The group struc-
ture is not the only forum for interaction among its members, and so groups
will develop to reflect not only the needs and feelings of clients, but also as
instruments to serve member interests.
In Village B, the group leader comes from the wealthiest family in the vil-
lage, which has large amounts of land. This family has a difficult relationship
with the village headwoman, and the microfinance group has been utilized by
its members to push their agenda and construct a rival power center. The role of
women in the maintenance of social relationships is well established as central
to social capital (Mayoux 2001; Maclean 2010; Molyneux 2002; Rankin 2002),
and women stay all of their lives in Village B, which is matrilineal (unlike Vil-
lage A, which is patrilineal and which women leave to go to the villages of
their husbands upon marriage). The effect is that the all-female loan group has
become dominated, without the knowledge of the MFI, by one kinship group
that has gained weight and importance in its community by being given genu-
ine power over the access of other households to credit. Although some may use
their loan for consumption or investment, group members make no secret of
the fact that a significant draw to the MFI is the group structure. As with mh15,
interest can be viewed as a kind of membership fee to an exclusive club.
It appears that the loan is a service that relatively economically secure clients
decide to pay for because it is convenient and because they enjoy being part
of a group. The loan is an alternative to having to save, and as such the group
ensures, when selecting members, that all of those people who are permitted
to take out a loan have or appear to have, at the time of joining, a sufficiently
stable income to support the repayments. Whether or not the loan will be used
for agricultural production—the explicit aim of this MFI—is not cited as a con-
sideration. The group members are aware that they are subverting the way the
loan is supposed to work, but in their experience, it makes little sense to allow
clients into the group only for them to struggle to repay the loan. They do not
seriously consider the idea that a loan will stimulate a significant change in
household income. Thus it is usually the case that the people who take out the
loans are those who could easily do without them, as they have multiple and
relatively steady income sources, often outside of agriculture.
Conclusion
At first glance, the two villages I have studied appear to interact with the MFI
very differently. While numbers of the Mzimba group dwindle, numbers in
Ntcheu appear relatively steady. However, there are commonalities in the ways
that both villages interact with the product. Risk management is at the center
of how these two communities use agricultural loans and particularly how they
have subverted the model that the MFI has attempted to implement.
In neither village is this “agricultural loan” used exclusively for agriculture.
What is more, the loan is designed to help the poor, and yet in both circum-
stances it has proved an inadequate product for poor people who either opt not
to use it or who are actively barred from accessing it by others. In both cases the
loan is viewed as a service to be purchased, if one can afford it, rather than as a
source of aid or a development intervention.
Many in the microfinance community would argue that clients adapting a
program to work for them is a mark of success. The premise of this particular
program is that use of the loan will change both livelihoods and the local econ-
omy—start a revolution that will create wealth for farmers—and it is being sold
alongside the development dialogues on smallholder agriculture. The clients,
however, appear not to view this as a serious prospect. The sheer complexity
of factors that farmers deal with as smallholders, or even just as rural people,
is such that a relatively small loan given with little additional market support
would never be able to mitigate the high level of risk and adversity they face.
Clients’ approach to the loan would appear to be one of purchasing a ser-
vice rather than investing. When the loan is useful, either for consumption or
for social inclusion, being “part of the club,” people see the interest as a cost
to be paid in order to realize benefits. This is not to say that none of the loans
had produced a positive effect. Rather, these clients do not believe that the loan
should be relied upon for investing, and they do not utilize it in order to get a
return. Microfinance advocates such as David Roodman may argue that finan-
cial inclusion is an end in itself and therefore that the freedom of people to
adapt a product is positive. However, agricultural microfinance was built with
production in mind, and productivity is what drives people out of poverty, not
consumption. The repurposing of loans by clients demonstrates the dynamism
of their communities, but it cannot be construed as a success of microfinance,
merely an indication that the MFI does not understand the community it is
supposed to serve.
When microfinance plays a productive role, the interest on a loan is, theo-
retically, covered. But when a loan is used for consumptive purposes—to buy a
new tin roof or even put in the bank—it is difficult to avoid the conclusion that
the interest essentially siphons money away from the community. Ultimately,
the product is unable to meet the needs of the envisioned clients. Agriculture
often needs some preproduction support in the form of credit; however, the
detached way in which this product was devised and delivered has meant it
cannot address postproduction problems, leaving clients vulnerable to all of the
risks inherent in farming and the product unable to meet its aims.
Notes
1. The IHM was developed by the NGO Evidence for Development to assess food
security.
2. In order to calibrate price data, I recorded minimum and maximum prices for
all crops grown and sold, all employment, and all wild foods sold in the villages.
The results varied considerably from the previous year, and I double checked
them for accuracy using focus groups, who gave the same answers for the first
and second years, and through consultation with an employee of the Ministry
of Agriculture. I found them to be reliable.
3. Those households where members were absent for the weeks of the study or
who chose not to take part in the study were not included.
4. Disposable income is calculated by gathering local information from the villages

about what items constitute “necessities.” The food requirements of the house-
hold are calculated by looking at the calorie content of household food produc-
tion and comparing this figure to the number of calories needed to sustain each
of the household members. This calorie requirement is then converted into a
cash requirement and the information added to the amount of money needed
in order to buy locally agreed upon necessities.
Part Four
Alternatives
Chapter Thirteen
Banking on the Difference

Credit Unions as Superior Local
Financial Institutions for the Poor
Introduction
In 2005, the United Nations’ “Year of Microcredit,” the International Co-

operative Alliance (ICA) used the occasion to highlight the important role
that cooperative enterprises have played for more than a century in providing
small-scale finance and supporting sustainable microenterprise development
throughout the world. Launching the theme “Microfinance is our business—
Co-operating out of poverty” at the International Day of Cooperatives on July 2,
2005, the ICA (2005, 1) claimed that “co-operatives are amongst the most suc-
cessful micro-finance institutions.” This statement was an important milestone
in a number of ways. It represented an attempt by the cooperative movement
to link itself with the then very popular microfinance movement. This was an
especially ironic move given that the leading light in the microfinance move-
ment, Dr. Muhammad Yunus, had always been very critical of the coopera-
tive model compared with his own model of a “social business,” exemplified
by Grameen Bank and its affiliates (see Bateman and Novković, chapter 6, this
volume). Above all, however, this move by the ICA was an attempt to highlight
the fact that cooperative and community-based financial institutions have very
successfully and equitably served the small-scale credit needs of poor commu-
nities for many years, well before the recent and much-trumpeted arrival of the
microfinance model in the 1980s.
This chapter compares the services offered by the commercial banking and
microfinance sector to those provided by the credit union and cooperative bank
movement. I explore ways in which the rise of microfinance eclipsed coopera-
tive and community-based forms of finance. While financial cooperatives and
credit unions have a long history of financing small-scale economic activity,
237
238 Jessica Gordon Nembhard
providing financial services to the underserved, and helping members take

advantage of social capital in situations where financial capital is scarce, they
are not best known for these activities. Instead, they are better known for build-
ing solidarity, trust, and mutual support within a community and for providing
a foundation that promotes even greater equality, fairness, and social justice.
Perhaps it was this additional “social transformation” role that microfinance
supporters saw as invalidating the cooperative and community-based finance
movement. And yet so many elements that made the microfinance movement
look successful, such as cohort lending circles and shared responsibility for
repayment, are cooperative and collective behaviors. I address these issues as
I attempt to explain the often-complicated relations between two movements
both claiming to be the best at providing small-scale finance.
Background
Credit unions operate as democratically managed institutions, both consumer

cooperative financial organizations and community-based financial institutions
(in some countries not for profit). They originated during the early to mid-1800s
in Europe, notably in Germany and Austria, with the general objective of cre-
ating a local financial structure to support and benefit the rural and urban poor.
Credit unions provide access to affordable financial services and loans, as well
as opportunities for savings and investment, because their mission is to best
serve their members. The philosophy behind credit unions is that people should
be able to pool their money and make low-cost loans to each other for a variety
of productive purposes, but also for simple consumption purposes (Birchall
1994). Any returns generated by such activities will be distributed to members
of the credit union through lower interest rates on loans and higher interest
rates on savings products. Membership in most credit unions was meant to
remain affordable to all, with any initial membership fee paid off over a period
of time thanks to the financial benefits accruing to members. In addition,
credit unions were initially required to consist of people who shared a “com-
mon bond,” such as affiliation with a church, employer, union, neighborhood,
or other community. This bond was important in creating and strengthening
the relations of solidarity and mutual support that join individuals within par-
ticular communities of interest (Gordon Nembhard 2013). Finally, credit unions
were set up, and continue today, to deliver low-cost financial services, affordable
Banking on the Difference 239
loans, financial literacy, and home-ownership education, particularly to under-

served and marginalized communities.1
The gradual growth of credit unions across the world has sometimes been
hindered by world events, such as wars and financial crises. Nonetheless, they
became very important local financial institutions in North America and in
many developing countries, such as Africa and Southeast Asia (Birchall 1994,
174). Most recently, the Great Recession has resulted in a major movement
away from the too-big-to-fail commercial (for-profit), private banks, which are
rightly seen as the guilty parties in the Wall Street meltdown that precipitated
the recession in 2008 (Blyth 2013), and toward credit unions, which had nothing
whatsoever to do with the financial crisis. In the United States, for example, the
financial crisis resulted in a wave of customer defections from the big private
banks over to credit unions.2 During 2012 credit unions continued to consoli-
date and grow in many markets. Indeed, credit unions experienced the largest
increase in membership in over a decade between mid-2011 and mid-2012 and
the largest dollar amount of loan originations in their history (CUNA 2012).
As of 2012, the United States had 7,103 credit unions with over US$1 trillion in
assets, 94 million member-owners, and delinquency rates averaging 1.20 per-
cent, indicating that they are in a stronger position than ever (CUNA 2012).
The UK credit union movement had a late start compared to neighboring
Ireland, where up to 70 percent of individuals are today members of a credit
union. The UK movement has made slow but important progress since it was
founded in the mid-1960s. As in other countries, the Great Recession spurred
the movement’s momentum, as many people left the discredited commer-
cial banks and looked to the local level for better services and a more ethical
approach to working with the community. The credit union movement then
hit the headlines in the summer of 2013, when Justin Welby, the archbishop of
Canterbury and head of the Church of England, announced plans to support
credit unions to provide an alternative to the expanding and ultra-expensive
payday lenders. He and others feared that the large rise in poverty and exclusion
in the United Kingdom thanks to the Great Recession was forcing many of the
most vulnerable people into the hands of an increasingly aggressive and unfor-
giving payday-lending sector.3 The Church of England realized that relying on
payday lenders was only postponing any solution to the problem, leading to a
bigger one in the long run rather than a resolution.
In developing countries, variations on what we now know as credit unions
initially arrived as a result of colonization. The British were probably the first
to realize that forms of cooperative credit would help to pacify local popu-
lations by, among other things, deterring indebtedness, usury, and exploita-
tion by local moneylenders. This pacification would thus allow the British to
go about exploiting a colonized country’s natural resources as quietly and as
efficiently as possible. In India, for example, the “scourge of the moneylender”
was a perennial problem affecting the agricultural sector, which was mostly
composed of tiny, unprofitable farms requiring tiny sums of money to kick-
start a new agricultural cycle every year. Continuous upheaval in the subsis-
tence agriculture sector, alongside abject poverty and mounting deprivation
(partly because the best land was being taken by the colonizers for their own
use), was disruptive. Cooperatives and credit unions thus lessened exploitation
and brought more stability. After proving useful to the British in India, the
cooperative credit movement began to spread across Asia and also further into
Africa. Credit unions gradually became accepted as important local financial
institutions, with the result that many of the first postcolonial international
aid programs had as their goal the establishment of functioning credit unions.
How Do Credit Unions Compare to Private Commercial Banks?
In comparison to commercial banks, according to Stock (2009), the num‑

ber of credit union failures in the United States is still comparatively less than
that of banks: only 12 out of more than 8,000 credit unions failed, whereas 120
out of 8,100 commercial banks failed. Stock also points out that while the num-
ber of credit unions has declined in the United States over the last ten years or
so, this decline is largely a result of the programmed consolidation of healthy
credit unions, not the failure of unsuccessful ones, and a continued increase
in members. In 2008 credit unions outperformed banks in generating new
mortgages, loans, and increases in deposits. Credit union loans increased from
$539 billion in 2007 to over $575 billion in 2008, at a time when loans outstand-
ing in US banks decreased by $31 billion (Marte 2009). Membership in credit
unions continues to increase. “In the 12 months ended in June 2009, 1.6 mil-
lion Americans joined a credit union, boosting the industry’s assets by 8.2%,
according to the Credit Union National Association” (Stock 2009). The years
2010, 2011, and 2012 experienced similar growth. Between 2007 and 2011, credit
union business loans grew by 42 percent, while business loans from commer-
cial banks declined by 2.2 percent. Real estate and all other loans from credit
unions increased, while those from commercial banks decreased (Schenk 2011).
Delinquency rates, though increased for all financial institutions, were signifi-
cantly lower for credit unions than for commercial banks every year (1.59 per-
cent compared with 4.22 percent in 2011, for example; Schenk 2011).
In addition, US credit unions remain “overcapitalized” in that they have
maintained a strong capital base and more than adequate reserve funds. The
National Credit Union Administration considers a credit union with a capital
to total assets ratio of 7 percent or higher to be well capitalized (Harris 2009).
Credit unions were capitalized above that percentage when the Great Recession
started (11.5 percent in 2006 and 11.4 percent in 2007) and have been hovering
at 10 percent since 2009 (10.2 percent in 2011; Schenk 2011). Interest rates on all
loans have been consistently lower at credit unions than at commercial banks
(and, of course, very much lower than at payday lenders). Credit unions not
only provide lower interest rates on loans, but also give higher interest rates
on interest-bearing accounts, including savings accounts, one-year certifi-
cates, and interest-bearing checking accounts (Schenk 2011). William Jackson’s
(2007) research also documents credit unions’ proconsumer behaviors. Credit
unions exhibit a pricing asymmetry that lowers the interest expense associated
with deposits but also lowers the interest revenue associated with loans over
the interest rate cycle, consistent with the maintenance of constant margins
between average deposit rates and average loan rates (Jackson 2007). Credit
unions can do business this way because it is part of their mission. A credit
union’s board of directors is composed of members and other individuals from
the community whose purpose is to facilitate financial services and education
for all members (see Gordon Nembhard 2013).
Consumers are looking for safe places to deposit their savings and for safe
loans (Rosenthal and Kim 2010; Stock 2009). “We’re always looking for new
opportunities,” said Family First CEO Kent Moore. “And the whole economic
crisis has made people educate themselves a little bit better about all of the
options out there” (Stock 2009, 2). John Peden, chief operating officer of the
Navy Federal Credit Union (the world’s largest credit union) notes, “There’s
been kind of a flight to safety with consumers, the crisis was an opportunity
for us to say: ‘We’re strong, we’re reserved and we’re looking out for your best
interests.’ With the troubles going on out there right now, that message reso-
nates” (Stock 2009, 2). In addition, Ellen Seidman told the Multinational Moni-
tor (2009) that credit unions “turn a profit, but they are double bottom line
or triple bottom line entities—meaning they measure and value social, and
sometimes environmental, achievements as well as financial success.” These

trends have continued, and credit unions experienced unprecedented growth
in 2012 (CUNA 2012).
Of course, not all has been smooth sailing. In recent years, many credit
unions have come under pressure to merge and scale up, due in large part to
international regulations designed to curb financial derivatives produced by
the investor-owned banking system, thus becoming detached from their local
roots. Even though they did not participate in trading the new, unstable deriva-
tives, credit unions have also been negatively affected by the increased costs of
compliance. Overall, however, and at least partly because of the growing prob-
lems encountered by the microfinance alternative, the credit union movement
remains on course to become an even more important aspect of the local econ-
omy in both developed and developing countries.
How Do Credit Unions Compare to Microfinance?
As I noted in the introduction, the credit union concept has recently been linked
into the world of microfinance, with both parties responsible, at different times,
for this gradual merging of concepts. The rise of the microfinance movement
in the 1980s presented the credit union movement with a real challenge: either
go along with, and so effectively become a part of, this new movement, which
was the darling of the international donor community at the time, or risk being
increasingly marginalized and isolated. The result was an effort by the coopera-
tive movement to show the international development community how credit
unions were as capable of participating in microlending for the poor as the new
nondemocratic, Grameen Bank–style microfinance institutions (MFIs; see, for
example, Almeyda and Branch 1998).
There is, however, a very respectable distance between the two concepts,
especially in developing countries, where issues of finance are critical to devel-
opment. The programmed outcomes of both institutional formats are seriously
different for the different stakeholders involved (see Gordon Nembhard 2011).
As observers have increasingly noted (Bateman 2010), contemporary micro-
finance has diverged from its original objective to do its utmost to reduce
poverty. Since 2007, when the first revelations emerged of the mega profits real-
ized by investors in Compartamos Banco in Mexico,4 the world of microfinance
has been rocked by one profiteering scandal after another. Longtime micro-
finance advocate turned critic Malcolm Harper (2011) argues that microfinance
should now be seen simply as a business, one that is often extremely profitable
for shareholders and investors, though not necessarily an institution that is
intrinsically “bad.” Muhammad Yunus has also admitted that profit has taken
over in the world of microfinance. These comments make it clear that the aver-
age MFI actually takes capital, or value, out of the poorest communities and
places it into the hands of rich individuals and private financial institutions,
many of which operate abroad in some of the richest countries in the world
(Duvendack and Mader, chapter 2, this volume).
Moreover, MFI managers receive large financial rewards compared to the
elected or appointed officials working in the average credit union. The extent
to which senior managers in Compartamos Banco were able to pay themselves
fantastic rewards (salaries, bonuses, and windfalls from the initial public offer-
ing [IPO] of 2007) while charging their poor, mostly female, clients interest
rates as high as 195 percent, was exposed by the World Council of Credit Union’s
Dave Richardson in 2007 (see Bateman and Sinković, chapter 7; Bateman and
Sharife, chapter 9, this volume). Not one of the major, mainly US-based, micro-
finance bodies and international development agencies intimately associated
with the establishment and growth of Compartamos Banco was willing to
openly comment on or criticize the senior managers for their personal profi-
teering in an institution that claimed to be “serving Mexico’s poor.” Pointedly,
this group included the Boston-based global microfinance advocacy body and
leading microfinance investor Accion, which also happened to be one of Com-
partamos Banco’s main shareholders at the time of the IPO.5 Such an “accumu-
lation by dispossession” mechanism (Harvey 2014), working in favor of both
an MFI’s outside investors and its senior managers and against the clients in
poverty, is increasingly the norm in the world of microfinance.
Accumulation by dispossession is an alien practice in the world of credit
unions. This crucial difference in purpose leads credit unions to adopt certain
values and principles not shared by the average MFI, which ultimately generates
long-term positive results for the credit union compared to the MFI. Of course,
credit unions still need to realize a surplus from their activities: they cannot
survive for very long if they operate at a financial loss. Any credit union must
carefully reinvest in its infrastructure and operations if it is to serve its mem-
bers better in the future than in the past. However, the methods used to realize
a surplus are clearly conditioned by the goals and values of the credit union.
Surplus generated by a credit union is distributed equitably to all members
and is not used to increase the salaries of senior managers in the credit union
or channeled outside to private investors. The salaries of senior managers in

almost all credit unions are extremely modest. In the Mondragon Corporation’s
bank, the Caja Laboral, for instance, the ratio between the salaries of manage-
ment and ordinary workers has hovered around 1:8 for many years.
Credit unions also aim at being good members of the community and pro-
mote economic and social development in their communities as much as pos-
sible (Gordon Nembhard 2013). A portion of the surplus of any credit union
is typically allocated to this important goal. Rather than yet another form of
corporate social responsibility (CSR), which experience now overwhelmingly
shows is simply an underhand technique used to cover up otherwise unethi-
cal, unpopular, or overly aggressive profit-making activities (Fleming and Jones
2013), a credit union’s efforts in the local community are far more likely to be
genuine and genuinely productive. Because members of the credit union are also
members of the community, they have an in-built desire to see their funds used
to confer sustainable benefit rather than for good public relations. Apart from
straightforward public relations, the many MFIs that engage in CSR do so for
charity. A credit union, on the other hand, directly supports fairness and justice
in the local community in order to eliminate the need for charity—to help the
community help itself.
Maximizing surplus (or profit) is thus not a goal of most credit unions so
much as generating a reasonable surplus that will ensure the credit union’s
financial health and allow it to meet member needs at present and in the future.
In addition, credit unions recycle some resources back into the community in
the form of support for community activities (Gordon Nembhard 2013). Even
if one accepts the contentious point that because of their democratic structure,
credit unions are sometimes more difficult to manage than conventional MFIs,
economic history shows that the end outcomes of the average credit union are
better for the growth and development of the community in the longer term
than anything generated by the typical MFI. This is even more true if the MFI
in question is one of the many now owned by individuals or institutions not
resident in the community and increasingly resident in rich countries abroad,
meaning that effective demand is taken out of a poor community (via dividend
payments) and spent elsewhere.
Credit unions were initially established to promote responsible savings habits
among the poor, which, in turn, helped to grow a pool of cash that could even-
tually be used to extend loans to members. This savings mobilization turned
out to be one of the strongest effects of the credit union. Soon enough even the
very poorest communities were able to gather sufficient funds to address mem-
ber needs and thus, among other things, ward off the unwelcome attentions of
the local moneylender. The impetus to expand the savings and loans side of the
credit union comes from members, as does the desire to attain a minimum effi-
cient scale of operations. However, as I have said already, credit unions are not
driven by profit, which would encourage them to unsustainably expand their
lending and ultimately risk members’ savings if they failed. Moreover, most
small-scale finance is accessed as loans in order to underpin simple consump-
tion spending (Bateman 2010, 29–31). In such cases, the poor want a simple,
low-cost source of finance and this area, perhaps more than any other, is where
a typical credit union excels in comparison to an MFI.
Given the commercial motives inherent in the average MFI, this dual savings
and lending model can often be extremely risky for an MFI’s local savers. As
Hugh Sinclair (2012a) shows, commercial MFIs often expand aggressively in
order to pad the salaries and bonuses of the senior officials promoting expan-
sion, as well as to generate dividends that are high enough to keep external
investors happy. Satisfying external investors invites more external capital
investment, which facilitates even more rapid growth, and so justifies higher
executive salaries, and so on. Any longer-term negative impact arising as a result
of these risky actions—losses and even the bankruptcy of the MFI itself—will
most often be felt by others. These losses will, in fact, mainly be borne by two
parties: those individuals who will lose their savings if the MFI goes under and
governments that are forced to intervene and compensate savers for their losses.
Both of these obvious possibilities help to account for why so many govern-
ments in developing countries have been extremely reluctant to grant MFIs the
right to take in savings. MFIs typically complain about the regulatory and capi-
tal requirement hoops they must jump through to be able to mobilize savings.
The growing track record of MFI collapses, saver losses, and government bail-
outs—notably in Africa in recent years—is, however, more than enough evi-
dence to suggest that governments are quite right to be so cautious.
A further problem is that when savings mobilization rights have been granted
to MFIs, governments and the international development community have been
pushed into some tight corners. They know that if the situation gets out of hand,
they may be forced into unorthodox preventative measures, measures that will
further undercut the rationale for microfinance in the first place. In relation to
Bangladesh, many feared that the massively overexpanded microfinance sector
was on the verge of collapse, which would wreak havoc on the millions of poor
savers linked to the main MFIs (including Grameen Bank), who might end
up losing their savings. Any collapse of the sector would also have a negative
effect on the reputation of the microfinance model per se. This may explain
why the main MFIs in Bangladesh were brought together around 2008–2009
and encouraged to make some sort of common agreement to halt their respec-
tive market-driven expansion plans (Chen and Rutherford 2013). The fact that
nonmarket measures were needed to head off an almost certain microfinance
sector crash in Bangladesh tells us something important about the robustness
of the market-driven microfinance model itself. Similar to what many financial
analysts said about Wall Street’s most exotic but ultimately hugely destructive
financial innovations, the market-driven microfinance model seems to work
until it doesn’t. We should remember that because of credit unions’ fundamen-
tally different constitution and objectives, almost no profit-driven yet danger-
ously unsustainable expansion-driven episodes have occurred in that sector in
recent years (see Gordon Nembhard 2013).
A final important developmental aspect of credit union operations also
needs to be highlighted: credit unions typically pay far more attention to the
type of business activities they are asked to finance through loans to members.
In spite of substantial evidence that most local economies are saturated with the
types of simple goods and services produced by the average microenterprise,
and so new entry serves no useful development purpose whatsoever (Page and
Söderbom 2012; Nightingale and Coad 2014), the microfinance industry has
no qualms about supporting even more microenterprises—so long as other
mechanisms exist to ensure a high level of repayment. Such “other mecha-
nisms” have included, of course, the concept of “joint collateral” (all borrowers
in a group are mutually responsible for each other’s loans) made famous by
Grameen Bank (but now increasingly being dropped). More ominously, these
mechanisms now increasingly include threats to debtors: subcontracting debt
collection to overly aggressive individuals and institutions, which also allows
them to maintain “plausible deniability” when they are caught; selling debt to
other institutions with less compunction about using heavy-handed debt col-
lection tactics; aggressively going after any guarantors to a microloan; and so
on (Sinclair 2012a).
Not-for-profit (as well as for-profit) credit unions are under less pressure
to push loans or support unsustainable local business sectors. In most cases, a
credit union’s officers will be aware of local business sectors that are becoming
overcrowded and can decide not to lend to members who wish to enter into
business in such obviously risky areas. It almost goes without saying that a credit
union will eschew the sort of unethical debt collection practices that are now
seen as commonplace in the microfinance sector. Credit union loan officers will
often reflect carefully on the use of any potential microloan and, in particular,
pay close attention to both the financial and community development sense in
their support of microenterprise activities. As a community-based institution,
a credit union will likely reflect on the fact that additional credit channeled
into overcrowded sectors will result in little net job creation or income-raising
benefits for the community. It may also make the credit union vulnerable in the
longer term if default in these overcrowded sectors starts to rise, as it often does
after a certain tipping point is reached.
In addition, many credit union loan officers help their members avoid debt
and avoid or postpone taking out a loan as part of their efforts to serve and
provide financial counseling to members (see Gordon Nembhard 2013). Many
credit unions are also active, alongside larger financial cooperatives, in pro-
moting other types of cooperatives in the community. This is important because
history shows that some of the best examples of local development involve a
central role for cooperatives, notably worker cooperatives and agricultural
cooperatives. Important examples exist in northern Italy, the Basque region of
northern Spain, and many parts of Germany (Goglio and Alexopoulos 2012). A
credit union not only makes sure that any loan disbursed is returned in full with
interest, it ensures this outcome while making a positive impact in the commu-
nity (Bateman 2007b; Gordon Nembhard 2013).
Conclusion
Credit unions provide a variety of savings instruments and asset-building pro-

grams, often at less cost and with higher returns than both private commercial
banks and MFIs. They provide many more sustainable paths to asset build-
ing and wealth accumulation for their members, and they avoid the pressure
to overindebt their members as a way of expanding as fast as possible. Credit
unions are important community-based institutions that provide fair, low-cost
credit and financial services to the underbanked and the unbanked, as well as
to low-wealth communities (Gordon Nembhard 2013). At a time when the com-
mercial financial system is in crisis and low-wealth and low-income people are
suffering and losing important assets, we need to strengthen and increase the
scale and scope of the credit union sector. Credit unions are good employers,
they help to recirculate money and resources within a community, and they
stabilize and energize their local economies in a number of ways, including by
helping to propagate other types of community-based cooperatives (Gordon
Nembhard 2013). Finally, they are community based and democratically owned,
so decisions, as well as value added, are broadly distributed. Promoting the
growth and development of credit unions (and related cooperative banks) will
increase community economic development and positively impact low-wealth
families and their communities. International development resources thus need
to be redirected: away from the increasingly problematic microfinance sector
and to those communities seeking to strengthen and expand their credit unions.
Acknowledgments
Warm thanks to Sonja Novković and Tom Webb, and especially to Milford Bate-
man, for very useful comments and suggestions on the first draft of this chapter.
Notes
1. For example, member credit unions of the National Federation of Community

Development Credit Unions (Credit Unions United to Serve the Underserved)
in the United States provide credit, savings, transaction, and financial educa-
tion services to more than 2.5 million residents of low-income urban, rural, and
reservation-based communities across the country and hold over $19 billion
in community-controlled assets. See http://www.cdcu.coop/membership
/membership-directory/.
2. See Gordon Nembhard 2013; and Ellis 2012.
3. Also, the payday-lender sector in the United Kingdom has in recent years come
under media attention as a result of its nakedly profiteering and increasingly
threatening activities. For example, leading payday lender Wonga was found
in early 2014 to have been issuing threatening letters from entirely fake legal
entities, a ruse for which the government demanded it pay £2.6 million as com-
pensation to those affected (Guardian 2014b).
4. In 2013, for instance, extraordinary profitability at Compartamos Banco allowed

it to pay out a dividend to shareholders amounting to €154 million. As micro-
finance advocate Daniel Rozas commented, such a stratospheric dividend pay-
ment can only be compared to those of some of the world’s largest commercial
and investment banks, such as Crédit Agricole, Europe’s largest bank, which in
2013 paid out €302 million. With Compartamos Banco paying out over half the
annual dividend payment of a major commercial bank working with rich clients
and governments, the claim that microfinance is about “helping the poor” rings
more hollow than ever (Rozas 2014b).
5. One possible reason for Accion’s reluctance to comment on this important issue
was only revealed later. In her position as president and CEO of Accion at the
time of the Compartamos Banco IPO, Maria Otero played an important role
advising the bank. For this effort, Otero was in 2008 very generously rewarded
with a $1 million bonus, and then in 2009 a $550,000 bonus, just prior to her
leaving Accion to join the first administration of US president Barrack Obama
as undersecretary of state for democracy and global affairs (see Sinclair 2012a,
75).
Chapter Fourteen
Microfinance and the “Woman” Question
Kate Maclean
Introduction
In this chapter I recontextualize the gendered, feminist appraisals of micro-

finance that have for decades been very critical of the intervention. The general
picture painted of microfinance, particularly since the financial crisis of 2008,
is of an industry that is financializing and turning toward mainstream banking
practices (Aitken 2010; Mader 2012). However, a number of institutions have
resisted pressures to prioritize financial sustainability or to refocus their inter-
ventions away from beneficiaries and toward shareholders. Some microfinance
interventions, despite having to appeal to an international funding agenda that
assumes that the extension of financial services alone can tackle poverty, are able
to provide spaces of negotiation that can be used by their beneficiaries to their
own ends (Townsend, Porter, and Mawdsley 2004). Nevertheless, the criticism
of microfinance is overwhelming, and I do not wish to argue with those who
emphasize the pernicious effects of microfinance in economic terms. I do wish
to illustrate how different the feminist critique of the intervention is and stress
the importance of taking this critique into account when formulating alter-
natives. Since the 1980s feminist and gendered critiques of development have
focused on the gender blindness of neoliberal, market-led economic strategies,
but the political left presents its own challenges to gender-inclusive develop-
ment. In formulating and assessing various alternatives to microfinance, and
the neoliberal approach to development that it exemplifies, we need to cast a
gendered eye on the conceptual, political, and historical construction of alterna-
tives, including state-led development, unions, cooperatives, and credit unions.
The websites and promotional literature of various microfinance organi-
zations, be they nongovernmental organizations (NGOs), quasi-commercial
251
252 Kate Maclean
organizations, or international aid agencies, reveal that the microfinance bene-

ficiary has a female face. While Grameen Bank claims that “women are the best
poverty fighters,”1 it is also received wisdom across the microfinance industry
that women have better repayment rates (World Bank 2007), which has been
recently affirmed in a comprehensive, worldwide review of the issue (D’Espa-
lier, Guérin, and Mersland 2011). MFIs have also emphasized the empowering
effects of the credit and associated financial independence within the house-
hold that a loan can provide, including decision-making power (Goetz 1996;
Kabeer 1997, 2001b). Feminist work on microfinance and women has sought to
bring out the complexities of these claims, while also highlighting the change
from a male-centered economic approach to development that microfinance
can represent (Banthia et al. 2012; Johnson 2005, 2009; Mayoux 2002a). Target-
ing women, as opposed to presumed male “household heads,” and targeting the
female-dominated informal economy, as opposed to assuming that informality
will gradually disappear with increased modernization, are both, potentially,
steps in the right direction from the point of view of the feminist economist
(Donath 2000). However, the gendered premises upon which microfinance has
been promoted as a women-centric intervention have also been roundly cri-
tiqued (Karim 2011b; Maclean 2010, 2013). The celebration of, rather than chal-
lenge to, women’s reproductive role, implicit in the idea that they are the “best
poverty fighters” and reflected in the assumption that their social collateral is
actually “free,” is a case in point.
There has been, in the first decade of the twenty-first century, quite a turn-
around in microfinance’s reputation. In terms of scholarship and policy, what
appears to have tipped the balance is the growing recognition that microfinance
has failed to deliver on its own economic terms. For example, Maren Duven-
dack’s (Duvendack and Palmer Jones 2012; Duvendack et al. 2011b) extraordi-
narily rigorous work in assessing and attempting to replicate the econometric
data that has underpinned the promotion of microfinance by international
development agencies has provoked pointed debates in journals of develop-
ment economics (Pitt 2012). Work on the corrosive effects of microfinance on
local economies has also radically changed the balance of debate (Ahmad 2007;
Bateman 2010; Dichter and Harper 2007).
Looking back to studies of microfinance from the 1990s and early 2000s,
however, it is striking that the weight of evidence against the intervention did
not tip the scales back then. This body of scholarship includes the highly cited
article by Ben Rogaly (1996) entitled “Micro-finance Evangelism, ‘Destitute
Microfinance and the “Woman” Question 253
Women,’ and the Hard Selling of a New Anti-poverty Formula”; Linda Mayoux’s
(2002b) work for One World Action entitled “Women’s Empowerment or the
Feminisation of Debt? Towards a New Agenda in Microfinance”; and Katharine
Rankin’s (2001) “Governing Development: Neoliberalism, Microcredit, and
Rational Economic Woman,” which is a highly critical, and also highly cited,
article in the journal Economy and Society. What these critiques have in com-
mon is that they offer a gendered analysis of microfinance. The evidence against
the idea that microfinance could “empower women,” which has been at the
forefront of its claims to alleviate poverty, has thus been challenged for decades.
These arguments, though, do not seem to be reflected in the current debates
around microfinance, in which the economic data against the intervention lead
the charge.
In what follows, I will take in turn the claims made about the potential bene-
fits of microfinance for women and present the feminist debates around these
issues. In terms of the key points highlighted, the way the arguments are con-
ceptualized, and the politics involved, feminist debates on microfinance are
configured very differently from those dominating the mainstream, both for
and against microfinance. My aim here is to ensure that the extremely powerful
counterarguments to microfinance’s efficacy are gendered, as are the solutions
that these diagnoses indicate.
“Women Are the Best Poverty Fighters”
The idea that women are the best poverty fighters permeates the rhetoric of
microfinance organizations. The development outcomes that are claimed for
microfinance include improving family nutrition, improving the rate of chil-
dren’s enrollment in school, and strengthening community ties, social capi-
tal, and civic participation (Dunford 2001; Littlefield, Morduch, and Hashemi
2003; Sanyal 2009). These outcomes are argued to be, in part, a function of how
microloans can give women more power within the household and valorize
their domestic role. If women, as opposed to men, have control of household
finances, either as the beneficiaries of loans or on the basis of the profits made
from the business a loan has supported, then they will supposedly dedicate
more resources to reproductive and community activities, which will in turn
yield positive development outcomes.
In many ways, the advocacy for women’s role in fighting poverty resonates
with much of the development literature that has been critical of the way that
254 Kate Maclean
women are excluded from mainstream considerations of economic develop-

ment. Women are responsible worldwide (even in developed nations such as
Sweden) for a greater proportion of housework and childcare, also known as
reproductive labor (e.g., Eisler 2013), than are men. However, this work, being
unremunerated, is “immune to attack by the economist’s tape measure” (Mar-
shall 1950, 3) and is invisible when only strict economic criteria, typically gross
domestic product, are used. When leaders implement policies designed to
increase national production, they tend to overlook the vital reproductive sec-
tor of the economy, which has a disproportionate effect on women.
Work on the gendered impact of the structural adjustment policies of the
1980s (e.g., Cornia, Jolly, and Stewart 1988; Sparr 1994) and similar austerity
packages, such as those implemented after the 2008 financial crisis, makes
a compelling case that women and girls bear a disproportionate burden of
the cuts imposed (Elson 2010). To summarize briefly, when the state retreats
from providing social infrastructure, in the form of health care, education,
and social work, as per the neoliberal prescription, women tend to be relied
upon to replace these crucial services, for free. Their work, which can include
caring for the young and the elderly, home schooling, participating in com-
munity projects, queuing at food banks, and so forth, has been theorized as
the “triple burden” of productive, reproductive, and community labor (Moser
1993). Not only do women continue to be the primary source of care within the
family and the people most likely to take responsibility for domestic chores,
but they are more likely to be involved in the community, which encompasses
a variety of tasks including volunteering, working in community kitchens, and
maintaining the family’s reputation in local “gossip” networks. This last point
is particularly important, although often trivialized (Maclean 2010). As house-
hold incomes diminish, which is another predicted consequence of economistic
austerity measures, women may, in addition, have to take on a productive,
income-generating role within the family, and their main barrier to entering
the marketplace, given their multiple burdens, is paucity of time (Elson 1995,
2010; Lister 2003).
The rationale behind microfinance’s targeting of women, as well as its cele-
bration of women as the “best poverty fighters,” resonates with these gendered
critiques of development, as microfinance places an economic value on women’s
“invisible” labor. As a development strategy, women-targeted microfinance
constitutes an investment in women’s reproductive labor, the mechanism by
which small loans translate into positive benefits for nutrition and children’s
education. Women’s “community labor”—in the form of their knowledge of

reputation and who can be trusted in the community—is, in effect, a risk assess-
ment for the bank. Discourses surrounding microfinance, in stark contrast to
many other development interventions, explicitly recognize the economic value
of what is typically thought to be women’s work.
However, these claims about “women’s work” are uncomfortably essential-
ist and tend to be made without comment on the sociopolitical and economic
context that obliges women to take on these roles. The burden of labor that
women take on is naturalized rather than explicitly valued and supported. What
is more, this assumption is racialized and classed. White upper-class women
are not assumed to spend their time or money in this way (Jubas 2011), and yet
the entire microfinance industry has been built on the idea that poor, nonwhite
women in the “third world” can be relied upon to selflessly invest in develop-
ment outcomes.
There are, of course, a multitude of different approaches to microfinance and
a number that are, for example, designed to encourage women’s advocacy within
the community, to highlight the importance of their role, and, in some cases, to
directly challenge the idea that they should be solely responsible for reproduc-
tive labor (Mayoux 2002b). In meetings, microfinance beneficiaries might be
encouraged to discuss the possibility of their husbands taking on more of the
reproductive labor or of negotiating with mothers-in-law so that the wife is not
the only one to take on these responsibilities (Krenz, Gilbert, and Mandayam
2013). In contrast, the repeated proclamation that “women are the best poverty
fighters” in mainstream debates on microfinance reinforces women’s duty to
perform reproductive and community labor, and while this labor may be good
for institutions and development, it is not clear that it is good for women.
These essentialized assumptions about women’s role in development are as
outdated as they are persistent and can be contrasted with an approach to devel-
opment that recognizes the importance of challenging gendered divisions of
labor; recognizes the vast diversity of the category “woman,” in terms of race,
ethnicity, class, rurality, sexuality, religion, and (dis)ability; and looks for stra-
tegic opportunities to promote gender equality. Despite much scholarship in
this field, plus the importance of progressing from the “Women in Develop-
ment” approaches of the 1970s, financial institutions are continuing to “dis-
cover” women’s economic activities and laud them as a development panacea.
A recent example is Goldman Sachs’ (2008) “10,000 Women” initiative and the
research behind it—“Women Hold Up Half the Sky.” Despite the potential for
256 Kate Maclean
microfinance to challenge received and stereotypical ideas about women’s eco-

nomic “roles,” as well as valorize reproductive and community labor, the inter-
vention tends to re-create and romanticize the feminine in development, and
equate “women” with heterosexual maternity (Bauhardt 2013; Bedford 2009).
Women Are More Likely to Pay Back
MFIs adopting the “financial systems” approach to microfinance (Hermes and

Lensink 2011),2 in which the aim of the intervention is to extend reliable, formal
financial services rather than correlations with other development indicators,
target women on the grounds that they are far more likely than men to pay back
loans. It is frequently stated that institutions that lend to women can expect
a much higher repayment rate, often of over 90 percent, than those lending
to men (D’espallier, Guérin, and Mersland 2011). Thus, even MFIs that target
women for instrumental reasons have the potential to overturn a proven gender
bias within the banking sector in which women in the developed and devel-
oping world pay more for credit (Alesina, Lotti, and Mistrulli 2013; Bernasek
2003; Marlow and Patton 2005) because they tend to lack collateral in their
own names due, for example, to inheritance through the male line, colonial
assumptions about household headship (Hamilton 1998), or gendered norms
around ownership and usufruct rights (Agarwal 1994; Deere and León 2003).
Recognizing women’s reliability as borrowers may go some way to overturning
gendered assumptions about financial reliability. Despite often being referred
to in press, publicity, and academic literature as “collateral free” (e.g., Silva 2010;
Takahashi, Higashikata, and Tsukada 2010),3 microfinance loans to women are
often given on the basis of a group guarantee, also known as “social collateral”
(Paal and Wiseman 2011). It may be that the value of this collateral is far higher
than the value of the loan and, in effect, that the high repayment rate results
not from the inherently good financial behavior of women, but rather from the
fact that the loan has been borrowed against excessive, albeit social, collateral.
Measurements of the success of those MFIs adopting the “financial systems”
approach rarely seek to go beyond the numbers. While the quantities of new
borrowers, new institutions, and rates of default are monitored (Ledgerwood,
Earne, and Nelson 2013), the question of why the default rate for women bor-
rowers is so low tends to be addressed in qualitative, academic, and anthropo-
logical studies, which tend to be marginalized by those adopting the ideology
behind the financial systems approach. Numerous studies have highlighted
how economically important the social collateral of the group guarantee is

in a development, and particularly rural subsistence, context (Maclean 2010;
Mayoux 2001; Rahman 1999a; Rankin 2001). When infrastructure in the form
of roads, transport, or water fails in such a context, the household relies upon
the community’s assistance. But one can only rely on the help of neighbors
if one has a good reputation and has “invested” in the exchange of gifts and
favors that underpins community and familial ties. Women are often charged
with maintaining the reputation of the family and with “servicing” community
relations. It follows that the social collateral resulting from these ties is particu-
larly important for women. We should not be surprised that staking a woman’s
friends, family, and neighbors against a loan is an effective way of guarantee-
ing repayment. We should, however, question whether it is wise to encourage
women to stake their social collateral against a loan of as little as US$50.
Although MFIs recognize the utility of women’s reproductive and commu-
nity roles in market development, these institutions do not value the work itself
other than for its role in maintaining flows of capital. By labeling this precious
resource “free collateral” (e.g., Shee and Turvey 2012), they naturalize the work
involved, as indicated by the long-standing feminist critique of the economic
values engendered by market-led development (Gibson-Graham 1996). Despite
having the potential to bring the importance of women’s work, including the
time it takes and the labor involved, to the attention of economists for whom
it is otherwise unremunerated and invisible, MFIs focusing on financial sus-
tainability re-create the original economic gender blindness by constructing
social collateral as “free.” Of course, not all MFIs blindly emphasize the building
of sustainable institutions and lowering of default rates, as dictated by propo-
nents of the financial systems approach. However, in a context in which funders
stress the importance of these factors, institutions have more and more dif-
ficulty addressing dimensions other than the bottom line, particularly in the
context of financialization.
Since the financial crisis, a number of institutions have promoted micro-
finance as a safe investment because of the high repayment rate of its borrow-
ers, and the rate of foreign direct investment in microfinance has increased
since 2008 (CGAP 2011a). Attracting this capital on the basis of women’s high
repayment rate may well exploit rather than support the work and risk that
women undertake in order to pay back their loans and maintain their valu-
able social collateral (Maclean 2013; Moodie 2013). Whereas institutions tend
not to explore the strategies that beneficiaries use to repay, numerous in-depth
258 Kate Maclean
research projects have demonstrated that further borrowing—potentially from

the informal lenders whom MFIs are designed to displace and including bor-
rowing against property and land, taking on further income-generating activi-
ties, and even sending children abroad to work and remit cash (Karim 2011b;
Maclean 2012; Mayoux 2001)—involves repayment strategies that do not show
up in institutional data sets. High repayment rates, although good for the insti-
tution, may be disguising highly undesirable development outcomes.
Although the idea that women pay back their loans more reliably is often
cited in microfinance promotional literature (e.g., Grameen Foundation 2014;
Wold 2014) and is part of the way the intervention is sold, the figures have
themselves been questioned (D’espallier, Guérin, and Mersland 2011; see also
Bateman and Sinković, chapter 7, this volume). Given the multitude of micro-
finance interventions around the world and the difficulties of data collection in
the development context, it is unclear from where the data behind this claim
derive. It has been argued that women’s high repayment rate has little empiri-
cal basis (D’espallier, Guérin, and Mersland 2011) and even that it discrimi-
nates against men, whose lack of access to microfinance has become an issue
in a variety of ways (Chant and Gutmann 2005). Rather than hard data, what
appears to be promoted is an image of a hardworking, risk-averse, responsible
female microfinance beneficiary (see Khandelwal and Freeman, chapter 3, this
volume). This focus on women is perhaps welcome given evidence of the dis-
crimination women face from many banks in both the developed and develop-
ing worlds and stereotypes of women’s economic role that tend to situate them
in the family and household. In a postcolonial context, however, this trope can
have some uncomfortable implications. The responsibility of the “rational eco-
nomic woman” in development is often set against the irresponsibility of men.
For instance, one opinion piece for World Vision states,
Sadly, we see time and again that . . . two-thirds of male income is spent
in the wrong places. Instead of sheltering families, feeding the bodies and
minds of their children, and supporting their communities, men tend to
spend more of their money on themselves and their own desires and hob-
bies. . . . Much of this can be attributed to poor economic and societal con-
ditions, in which men begin turning to their own self-interest. . . . Instead
of affirming men and seeking to invest in them, we have allowed industries,
like sex trafficking and drug trafficking, to exploit them at their expense.
(Wold 2014)
While financial independence within the household is arguably beneficial for

many women and recognition of their financial acumen can overturn gendered
prejudice, this image of the responsible woman may also be perpetuating racial-
ized stereotypes of men’s irresponsibility (Cornwall 2007). As Sylvia Chant and
Matthew Gutmann (2005, 278–79) argue, in the historical context of colonial-
ism, “constructions of Third World men as ‘idle’ and ‘irresponsible’ can also be
used to serve wider North-South political agendas,” as well as to re-create racist
stereotypes.
Microfinance Empowers Women
The most oft-quoted maxim with regard to microfinance is that it “empowers”

women, and various attempts have been made to assess whether or not the pro-
vision of small loans on the basis of a group guarantee is in fact “empowering”
(e.g., Kabeer 2001a). Quantitative studies have operationalized the term in vari-
ous ways, and indicators of empowerment have included increased decision-
making power within the household, control of the loan, increased community
participation, increased social capital, and increased civic engagement (e.g.,
Ngo and Wahhaj 2012). Qualitative studies have sought to “ground” this term in
local cultural ideas, despite the fact that in many languages the word empower-
ment does not exist (Rowlands 1997). The use of the term in the microfinance
context has been criticized as reflecting individualistic Western assumptions
about what power, confidence, and esteem mean. In economistic terms, the
word empowerment tends to be assessed in terms of a “breakdown position,”
referring to bargaining power within the household as a function of the posi-
tion one would be in if one left (Bhatt 1995; Sen 1990). The financial indepen-
dence that a woman can potentially gain from having her own microbusiness
supported by a microfinance loan could therefore constitute an improvement
to her breakdown position, as she would not be so financially vulnerable if she
left her household (Osmani 2007).
Empowerment is, however, more complex and more intangible than state-
ments about credit and women’s empowerment would suggest. Power can take
a variety of forms, and although individualistic notions of empowerment might
emphasize the power to do what one wants and even power over others, the
importance of more horizontal, collaborative forms of power may be over-
looked (Guérin, Kumar, and Agier 2013). Ideas of what a person “should be”
are, of course, culturally situated. Naila Kabeer’s (2001a) work brings out the
260 Kate Maclean
tensions of women’s empowerment within the household. In her examination

of intrahousehold dynamics, she gives the example of one woman who, despite
being the sole beneficiary of a loan that she used to buy a rickshaw, insisted on
putting her husband’s name on the vehicle. She explained that he would be driv-
ing it and that it would be a shame for him to be seen driving a vehicle owned by
his wife. In terms of bargaining and breakdown position, the woman’s actions
might almost be seen as internalized oppression; however, the borrower’s
understanding of her situation highlights the importance of grounding ideas of
empowerment culturally and taking into account household dynamics that are
rarely dictated by rational economic motivations.
Despite serious problems with the way that women’s empowerment has been
conceptualized in the microfinance debate, the fact that a feminist issue has
been preoccupying mainstream economists and development specialists could
be seen as a step forward. The interest in microfinance, albeit generated by its
profit-making potential for lenders, has broached the public-private divide and
assumptions about the household being a “black box”—which are key issues
in feminist economics—and brought issues of intrahousehold empowerment,
cultural values, and liberation to a wider audience. Nevertheless, the assump-
tion that access to credit alone can address women’s exploitation in the labor
market and the home is naïve, devoid of social and political context, and poten-
tially pernicious. Implicit in this assumption is the idea that the market, if all
were to have equal access, would alleviate rather than cause exploitation, an
assumption that has repeatedly been challenged and has very little evidence to
support it (Harvey 2011). Although the importance of financial independence
in the market is central to “liberal feminism,” the market operates with class,
race, and other colonial biases that structure women’s opportunities and favor
white, middle- and upper-class, urban women. Taking into account the multiple
“barriers” to women’s access to the market is not enough to allow us to fully
understand the material and discursive factors that constitute oppression and
exclusion, and claims about credit and “women’s empowerment” are therefore
inherently simplistic.
Microfinance and the Informal Sector
The final issue that has strongly divided opinion on microfinance is the
approach to the informal sector that the intervention represents. Microfinance
gained popularity in mainstream economic debates in part due to Hernando de
Soto’s (1986) early work on the huge developmental impetus that the informal
sector could provide if only the poor were completely liberated from suppos-
edly unnecessary government regulations and provided with microcredit. He
backed up this work with later work on the importance of informal savings and
property rights (de Soto 2003). He claimed that bringing the savings of the poor,
along with their other informally held assets, into national accounting would
outweigh the aid budget multiple times over. The poor would be able to use their
newfound property rights as collateral in order to access as much (micro)credit
as they could wish for. By supporting informal microenterprises, microfinance
interventions value and support development in the informal economy.
Many have debated the influence that mobilizing resources in this way has
at the national scale. A micro-macro paradox has been observed in micro-
finance in which success at the local level does not translate into improvements
in growth and GDP at the macro level (Mosley 1999). Microfinance does not
provide the articulations required for a national economy. As Milford Bate-
man (2010, 2013b) has observed, and the IDB (2010) concurs, there are critical
opportunity costs involved in development strategies in which financial inter-
mediation through certain institutions—here, MFIs—leads to the channeling
of a country’s scarce financial resources into the least productive informal areas
of the economy. Countries such as Vietnam, which coordinated its financial
resources to a much greater extent and took deliberate steps to invest in the pro-
motion of small and medium enterprises (SMEs, not microenterprises), agri-
cultural cooperatives, and collective infrastructure (such as irrigation), have
tended to fare much better than those that placed market-driven microfinance
at the center of the development agenda, including Vietnam’s neighbor, Cam-
bodia, and Bolivia.
Questions of scale, however, are gendered. Debates around scale are legion
and can become quite abstract, with many questioning whether any “objective”
difference exists between what is considered “local” and “global,” or “micro”
and “macro,” and arguing that the distinction is a political construction (Esco-
bar 2007; Marston, Jones, and Woodward 2005). To give a practical example,
interventions that supposedly operate on a national level, for instance invest-
ments designed to boost GDP, have been shown to systematically favor certain
people—often upper-class, white men—despite their pretensions of having
even coverage, unlike “local” or “micro” programs that are explicitly partial
(Freeman 2001). Development strategies that focus on the formal, national
economy may therefore be implicitly gendered.
The informal economy has been approached in various ways (Meagher
2013). Structuralists tend to think of the informal economy as something that
262 Kate Maclean
will be minimized by development—that modernization and the development

of robust labor rights will gradually reduce the need for people to adopt infor-
mal income-generating strategies, which is seen as a benefit given the hardships
involved in working in the informal economy. The neoliberal approach to the
informal economy, of which de Soto is a prime example, tends to see it as the
ultimate free market, in which the creative economic strategies of autonomous
individuals are the key to economic development. Both of these approaches are
problematic (Williams 2011). Whereas the neoliberals romanticize or ignore the
waste, hardship, and exploitation of the informal economy, the structuralists
underestimate the importance of the informal economy to economic devel-
opment and people’s agency. State-led approaches to development can further
entrench stereotypes of women’s economic role, while promoting national
industries and unions that foreground class rather than gender inequality and
tend to be spearheaded by masculinist concerns and assumptions (Kirton and
Healey 2013; Ledwith and Hansen 2013; Maclean 2014b).
As the informal economy worldwide is dominated by women (Chen 2012),
an approach that recognizes the hardships and exploitation of but also values
the informal sector, both in relation to the economy as a whole and in terms
of the autonomy that some individuals may find within it, is important for a
feminist analysis (Cameron and Gibson-Graham 2003). Thinking differently
about the economy and questioning the value system that structures what is
seen as “work” and how different forms of labor are paid, as well as questioning
assumptions about who performs particular labors, have been central to femi-
nist analyses of the informal economy. Policy makers have suggested various
institutional frameworks that support the flexibility and autonomy of informal
enterprises and that better support women’s informal labor by changing the
structures that render informal work vulnerable to exploitation. These include
various social protection measures, as well as women’s cooperatives, cash trans-
fers, childcare grants, and microfinance (Chen 2012; Kabeer 2014).
Microfinance is intended to support informal enterprises, and in particu-
lar the women involved in them, by providing a formal source of credit that
can support the growth and ultimately the formalization of these businesses.
Because many women’s income-generating activities are informal and they lack
the formal collateral or paperwork to obtain credit in mainstream banks, their
reliance on informal lenders is in some cases—although not all—an element
of their vulnerability in that sector (Williams and Gurtoo 2011). In providing a
source of credit that bypasses banks and informal lenders, microfinance could
be seen as recognizing and supporting the work that goes on in the informal
economy as being vital to development, as well as alleviating some of the struc-

tural problems that allow exploitation.
However, with the focus on the financial sustainability of the MFI, it is not
clear that the terms of the loans offered from these institutions are inherently
preferable to those offered by informal lenders in the community. Without
usury laws, the distinction between formal lenders and informal lenders is not
a function of a loan’s terms, but of the official status of the institution providing
the financial services. Since the financial crisis, even formal lenders in the devel-
oped world have been charging exorbitant interest rates, which make those of
informal lenders in the markets of the developing world pale in comparison and
make the distinction between legitimate institutions and “loan sharks” diffi-
cult to discern (Aldohni 2013). In the development context, the informal lender
may, in effect, be regulated by community institutions and the local politics
of reputation and so charge rates deemed to be reasonable. The assumption
that informal lenders are more exploitative than regulated microfinance insti-
tutions is a question for empirical investigation, rather than something that can
be assumed (Guérin, Morvant-Roux, and Servet 2011; Maclean 2012).
Conclusion: Feminist Critiques and Alternatives
Feminist economists were among the first to point out the pernicious short-
comings of microfinance, particularly when the intervention became a vehicle
for the outreach of financial services, rather than a tool in the political project
of recognizing women’s economic activity and agency. As a women-targeted
financial intervention that at one point took center stage in development dis-
course, microfinance had the potential to overturn stereotypes of women’s
reproductive role, to recognize and value the importance of reproductive and
community labor for development, to address gender biases in access to credit,
and to challenge the public/private divide that shapes the values of the colonial,
capitalist economy that so frequently is equated with development. Little visible
progress has been made in these important areas.
As part of a feminist program for women’s empowerment, however, micro-
finance might still have a role to play. Advocates of a “feminist approach”
(Mayoux 2002a) typically reference the Self-Employed Women’s Association
(SEWA) of the 1970s, which had an explicitly political Marxist-feminist frame-
work and used microfinance as part of broader advocacy on the importance of
recognizing and supporting women’s informal labor. In a context that explicitly
sets out to change gendered divisions of labor, ideas of value, and exploitation,
264 Kate Maclean
small amounts of credit given against a social guarantee may have a place. In
addition, the prominence of microfinance, and the funding that has become
attached to income-generating projects targeting women, has provided a space
in which such interventions have been developed. However, it has been clear
since the turn of the century that microfinance has been co-opted by financial
interventions promoting an unreconstructed, neoliberal approach to develop-
ment that inherently replicates rather than challenges gender biases. The politi-
cal dynamics surrounding the sidelining of feminist approaches to and critiques
of microfinance are familiar: what could be seen as a radical intervention has
been co-opted on mainstream terms, hence replicating the underlying political
problem that it set out to alleviate.
The “heterodox economic” criticism of microfinance and quantitative evi-
dence of its inefficacy have excoriated the arguments in its favor. Although
this criticism is welcome after decades of “evangelism,” the space that debates
around microfinance initially opened up for a discussion of the importance
of women’s informal income-generating activities needs to be maintained. We
must continue to push for a recognition and valuation of the importance of
reproductive labor, community relationships, and informal economic activities,
while at the same time challenging the idea that these are necessarily women’s
work. Investments in social infrastructure, social protection, and the care econ-
omy can be pushed aside by a focus on state-led national production, unless
gender is maintained as a central category of analysis in the debate. Many of
the feminist criticisms levied against microfinance’s utilization of “social capi-
tal” can be levied against other community-based alternatives, which can also
romanticize women’s community and emotional labor in maintaining group
cohesion and underestimate the presence and effects of discrimination, harass-
ment, and exclusion based on gender.
Notes
1. See http://grameen-jameel.com/microfinance/.
2. This is also known as the “financial sustainability” or “minimal” approach to

microfinance.
3. See also http://opportunity.org/what-we-do/where-we-work/kenya-facts-about

-poverty; and http://www.brac.net/content/faq-0#.UwSUZ17j6UY.
Chapter Fifteen
Moral and Other Economies

Nijera Kori and Its Alternatives to Microcredit
Kasia Paprocki
Introduction
Nijera Kori, Bangladesh’s largest movement of landless people, is committed

to mobilizing the rural poor to demand their rights; in so doing, they actively
reject microcredit and the service-delivery approach that it exemplifies. This
rejection is noteworthy in a country that has become known as the “birthplace
of microcredit” and that boasts more microcredit borrowers per square mile
than any other country in the world (Yunus 2011). This chapter examines the
politics of Nijera Kori’s rejection of microcredit, grounded in the particular
moral economy of Bangladesh’s traditional peasant society: “their notion of eco-
nomic justice and their working definition of exploitation” (Scott 1976, 3). This
politics offers not only a critique of microcredit and the contemporary global
development paradigm, but also a radical alternative to the normative vision of
rural life they promote. While microcredit programs, equipped with the rheto-
ric of empowerment of rural communities, claim to address the concerns linked
to this moral economy, they do so in such a way as to hollow out any analysis
of the resource disparity and injustice that are at its very core. Alternatively, the
work of Nijera Kori not only honors Bangladesh’s traditional peasant moral
economy, but in fact strengthens the frameworks through which peasants can
struggle to achieve social justice.
At the center of Nijera Kori’s divergence from microcredit programs is a fun-
damentally different interpretation of the historical foundations of poverty and
inequality in rural Bangladesh. This interpretation recognizes that poverty is
produced within a particular political-economic context and that a focus on this
agrarian political economy suggests a manifestly different agenda for addressing
poverty and development. In her trenchant critique of microcredit programs
265
266 Kasia Paprocki
in Cairo, Julia Elyachar (2005, 193) explains that “the notion of empowerment
became an important underpinning to neoliberal programs that ‘respond to
the sufferer as if they were the author of their own misfortune.’” Nijera Kori’s
critique of microcredit, along with its advocacy and mobilization work, starts
from the premise that the cause of poverty is not a lack of resources, but instead
the unequal distribution of resources. The critique also insists that the poor and
marginalized are not responsible for their own privation, which, in fact, stems
from a historical pattern of injustice and inequity that has only been exacer-
bated by the expansion of capitalism in rural Bangladesh, including the prolif-
eration of microcredit programs.
Despite the historical circumstances in which they find themselves, the suc-
cess of Nijera Kori attests to the fact that the poor have the capacity to mobilize,
advocate for their rights, and in so doing, improve their social and material
conditions. In recognizing this collective agency of the poor, Nijera Kori rejects
the dominant service-delivery approach of nongovernmental organizations
(NGOs) in favor of conscientization and mobilization, in order to support the
poor in realizing their own collective capabilities (Kabeer 2003). Conscientiza-
tion refers to a social mobilization approach that was used widely in Bangladesh
in the 1970s and 1980s, similar to that of Paulo Freire, which focuses on devel-
oping “the potential of poor people to challenge structural inequalities through
education, organization, and mobilization” (Lewis 1997, 35).
I will begin this chapter with an overview of Nijera Kori and its history,
contextualized in relation to the shift in development agendas through which
microcredit programs have flourished in Bangladesh. This overview will be fol-
lowed by a discussion of the moral economy of the Bangladeshi peasantry and
the agrarian political economy within which both Nijera Kori and microcredit
programs operate. I will then offer three important tenets of this moral econ-
omy, as well as particular strategies for organizing and advocacy employed by
Nijera Kori landless groups, which offer a substantive alternative to the strate-
gies promoted by microcredit programs.
Nijera Kori and Its History
Despite its small organizational capacity, Nijera Kori works in 25 percent of

Bangladesh’s sixty-four districts. Its active membership of almost 250,000 indi-
viduals does not do justice to the even more significant social and economic
Moral and Other Economies 267
impact of its presence on the wider population of each of the 1,323 villages in
which it operates (Nijera Kori 2013). This membership is composed of women
and men who depend on their own physical labor as their main source of liveli-
hood—primarily agricultural wage laborers, sharecroppers, and marginal
farmers.
As Naila Kabeer (2003) has written in her insightful history of the move-
ment, Nijera Kori in its current manifestation was formed in 1980, when a
group of rural community organizers for BRAC (today one of Bangladesh’s
largest microfinance agencies) broke away to join Nijera Kori. Dissatisfied with
BRAC’s increasing reliance on the service-delivery approach, which was then
gaining strength in Bangladesh’s development sector, in no small part through
pressure from donors, these organizers left in order to pursue the awareness-
raising and social-mobilization activities among the rural poor that had charac-
terized their work during the recent postindependence period. Kabeer (2003, 2)
writes, “The disaffected staff took with them a very different understanding of
the developmental problems of Bangladesh, one which has since shaped the
history and evolution of NK.”
As an organization focused on social mobilization toward the achieve-
ment of rights for the rural poor, Nijera Kori offers a fundamentally different
political-ideological paradigm than that of Bangladesh’s microcredit providers,
which is expressed in its unique programming goals and outcomes. These con-
flicting paradigms are demonstrative of a broader split in Bangladesh’s NGO
sector beginning in the 1980s, when the global rise of neoliberal development
motivated a shift away from social mobilization programs and the critical poli-
tics that supported them (Kabeer 2003; Karim 2001; Lewis 1997).1 The donor-
motivated neoliberalization of the Bangladeshi NGO sector has driven the
sector’s institutionalization, depoliticization, and resulting expansion (Devine
2003; Feldman 2003), and this shift is exemplified by the remarkable rise of the
country’s microcredit industry (Cons and Paprocki 2010; Muhammad 2009).
Nijera Kori’s continued commitment to an ideology of social mobilization
made it unique within a dramatically changing development landscape (Kabeer,
Mahmud, and Castro 2010; Lewis 2011). According to Kabeer (2003, 40), Nijera
Kori remains the foremost example of an approach that “focuses on structural
inequalities in society and seeks to explain how dominance and oppression are
maintained. Change is seen to come about as the result of systemic conflict
and the goal is to ensure radical transformation of the system itself rather than
268 Kasia Paprocki
reforms that leave these inequalities intact.” While Nijera Kori focuses on miti-
gating the structural inequalities that it sees as the source of poverty, many
scholars of microcredit have suggested that microcredit programs, in fact, rely
on these inequalities to ensure their own continued success (Fernando 1997;
Karim 2011b; Rankin 2001; Paprocki 2016).
Nijera Kori pursues systemic transformation by building what it calls the
“collective capabilities” of its members, which Kabeer (2003, 39) explains as
“their ability to mobilise as rights-bearing citizens on their own behalf.” The
concept of collective capabilities recognizes that true “development” can only
be realized through the political empowerment of citizens in deliberation,
debate, and active mobilization toward achieving the kind of society in which
they want to live (Basu 2010; Feldman and Gellert 2006). It entails what Peter
Evans (2002, 55) refers to as the “messy and continuous involvement of the citi-
zenry in the setting of economic priorities.” This kind of change requires the
provision of something much more intangible than financial and other social
services that seek to fill in where markets, the state, and “good governance” have
failed (Li 2009). It requires the provision of information, forums for dialogue
and exchange, and training and mobilization to enable people to be the engaged
citizens they aspire to be, undermining the very nature of neoliberalism with its
emphasis on separating the political from the economic.
The centerpiece of Nijera Kori’s conscientization activities is a training pro-
gram through which members of Nijera Kori’s landless collectives are provided
with issue- and skill-based trainings lasting between three and ten days. Issue-
based trainings are tailored to specific local concerns, often based on direct
requests from local groups, and include topics such as “Land and Women,”
“Citizens’ Rights and Constitutional Guarantees,” and “Land Laws and Manage-
ment Systems.” These trainings also often focus on very pressing community-
based issues, such as dowries, child marriage, and domestic violence. Through
the trainings, participants work together, along with Nijera Kori’s staff trainers,
to identify local problems, examine their causes and impacts, and then deter-
mine proper courses of action to address them. Skill-based trainings cover
topics such as leadership development, participatory planning, management
of cooperative economic projects, and how to access information from govern-
ment and NGO agencies through Bangladesh’s Right to Information Act. The
ultimate goal of these trainings is to develop autonomous landless organizations
that are able to mobilize independently in response to collectively identified
problems. Social mobilization and consciousness are also facilitated through

cultural activities such as songs and street theater performances depicting social
and economic injustices in a variety of different forums, from public markets to
major cultural festivals. These performances provide a platform for Nijera Kori
members to engage their wider communities in dialogue about the possibilities
for social and economic transformation. Thus, Nijera Kori’s model for transfor-
mative change rests on the development of the collective capability of landless
groups to actively deliberate about their shared values and, based on this delib-
eration, to collectively pursue social and economic justice.
Agrarian Moral Economies
In order to understand Nijera Kori, the politics of its opposition to microcredit,

and the substantive alternative it offers, I draw on the concept of “moral econ-
omy,” which has been employed in a variety of forms by scholars of agrarian
studies. The contemporary popularity of this concept can be attributed to
British historian E. P. Thompson (1971), who used it to refer to the repertoires
of resistance and notions of justice and traditional rights drawn on by the
urban poor during food riots in eighteenth-century England. In 1976 James
Scott took up the concept of moral economy in the rural context to examine
the notion of the right to subsistence among Southeast Asian peasantries. In
her lucid analysis of “agrarian moral economies,” Wendy Wolford (2005, 245)
defines moral economies as “both the expression of and production of a social
group’s explicitly normative frameworks outlining the ‘proper’ organization
of society and division of (what are perceived as) scarce resources. They con-
tain ideological elements and are historically and spatially situated in concrete
material contexts, as is any understanding of ideology, but moral economies go
beyond the realm of ideas to incorporate relationships and actions specifically
those which pertain to resource use.”2 In this sense, moral economies repre-
sent collective, normative frameworks of justice and rights, and they often
govern norms for social organization and production relations in rural com-
munities. Following Scott, “moral economy” has continued to be an important
conceptual framework for recognizing not only peasant understandings of tra-
ditional rights and entitlements, but also impacts of development processes
on the preservation and fulfillment of these norms (Edelman 2005; Sivarama-
krishnan 2005; Watts 1983).
270 Kasia Paprocki
Nijera Kori and the Moral Economy

of the Bangladeshi Peasant
The concept of moral economy highlights some of Nijera Kori’s key tenets: the
recognition of historical inequity, the need for subsistence security, and the
right to continue being agriculturalists. These three precepts are foundational
to Nijera Kori’s work, both methodologically and ideologically. They form the
backdrop for a rights-based approach driven by the belief that structural trans-
formation and the mitigation of poverty and injustice can only be achieved
through collective struggle and political empowerment.
By invoking moral economy, I do not mean to suggest that Bangladeshi vil-
lages are havens of egalitarianism. Intense stratification and harsh clientelism
continue to be the rule (Hart 1988; Van Schendel 1982; Westergaard and Hos-
sain 2005). However, the work of Nijera Kori and the landless collectivities of
which it is composed suggests that empowering people with historically and
geographically contextualized understandings of collectively recognized rights
and obligations holds the greatest promise for generating political mobilization
toward structural change and the political enfranchisement of the most mar-
ginalized (Mohanty 1991).
Moreover, drawing attention to these people as peasants who play an active
role in agrarian economies is critical to attainment of their rights. Indeed, their
lack of private land rights would lead many academics and policy makers to cate-
gorize these people not as peasants, but as workers, a classification that would
imply their superfluousness to agrarian economies (Akram-Lodhi, Haroon, and
Kay 2009). The distinction carries significant implications with regard to rural
politics and development regimes in the region. It entails recognition of a his-
tory about which microcredit practitioners are wholly silent, that is, the history
of successive colonial regimes, which exacerbated poverty and inequality in the
region. In particular, the Permanent Settlement Act, passed under British rule
in 1793, codified a distinct development regime that dispossessed agricultural-
ists by giving the rights to all lands to elite rural gentry, resulting in substantial
exploitation through an extensive system of sub-infeudation (Boyce 1987; Iqbal
2010; Van Schendel 1982, 2009). The legacy of this land tenure regime is high
rates of rural poverty and landlessness. Today, approximately 48 percent of the
rural population is functionally landless (owning less than 0.05 acres of land;
World Bank 2002). Thus, landlessness has historically been a central political
concern for the poor in rural areas in Bengal. Agrarian communities in the
area that is now Bangladesh have struggled repeatedly for the right to a peasant
livelihood for smallholders and landless people alike (Cooper 1988; Hashmi
1992; Van Schendel 1982).
Historical Injustice
An important element of Nijera Kori’s alternative to microcredit is the difference

in its interpretation of historical injustice from that of neoliberal development.
Nijera Kori’s approach and ideology are motivated by a particular historical
analysis, which understands that poverty is a product of historical inequality
and that this inequality requires not only redress for those who have suffered,
but also obligates those who have benefited. This analysis is fundamental to the
moral economy of the peasant in which obligations to assist those lower in the
class hierarchy are not seen as “charity” because the poor are entitled to such
assistance (Scott 1976).
Nijera Kori’s analysis is directly at odds with the neoliberal approach of
microcredit, which is inimical to the idea of “charity,” either as social services
delivered by NGOs or as social safety net mechanisms provided by the govern-
ment. In contrast to the historical analysis motivating Nijera Kori’s approach,
microcredit programs operate by abstracting from the historical context in
which a particular agrarian political economy has developed (Taylor 2012). As a
result, “class differences are reduced to an unfortunate legacy of an insufficiently
neoliberal past” (Wolford 2005, 257).
Given this analysis of historical injustice, as well as the awareness that
these historical patterns continue to shape and perpetuate the power struc-
tures within rural communities, Nijera Kori landless groups have established
“watch committees” throughout all of their working areas that are responsible
for monitoring rights violations on specific issues, including education, health,
natural resources, development and governance, fundamentalism, and gender.
These committees, which are composed of elected members of local landless
groups, gather information about rights violations and work together with
landless groups to address these concerns. The work of the watch committees
thus promotes accountability for the fulfillment of rights in rural communities,
ensuring justice for even the most marginal populations.
Another example of Nijera Kori’s efforts to directly address historical
injustices is the movement’s multiplatform campaign for land reform, which
seeks to gain access to land for landless and marginal farmers. The majority of
272 Kasia Paprocki
Bangladesh’s landless poor work as sharecroppers or agricultural day laborers,

livelihoods that are fraught with insecurity and exploitation. Sharecroppers pay
anywhere between one-third to two-thirds of their earnings as rent for the land
they farm, and day laborers often earn even less. Thus, land access is a key con-
cern for the rural poor. In recognition of the historically inequitable land dis-
tribution in the region, Bangladesh’s constitution includes a provision for the
distribution of common khas lands among the landless. Due to government
and elite corruption and limited oversight of the mechanisms that might actu-
ally carry out this distribution, however, this right is rarely fulfilled in practice.
Nijera Kori has had tremendous success in campaigning to address these defi-
ciencies through a range of advocacy and mobilization activities. Land-reform
priorities include overhauling land-use and sharecropping tenancy–rights poli-
cies, implementing the legal land ceiling and redistributing excess lands, and
ensuring accountability and eliminating corruption in the distribution of khas
lands. In addition to advocacy work, landless groups have also had great suc-
cess in gaining access to agricultural land through direct agitation and squat-
ting campaigns, establishing their rights to land access through occupation and
settlement (Adnan 2011). While the World Bank envisions land reform in Ban-
gladesh through the provision of microcredit to small farmers (Khan 2004),
Nijera Kori’s land-reform campaigns are grounded in both a fundamental belief
in resource equity and the conviction that people should receive that to which
they are entitled.
Security and Safety Nets
At its most basic level, the moral economy of the peasant is grounded in a
simple belief in the universal right to survival (Scott 1976). An important corol-
lary to this belief is the right to access social safety nets when the security of
this survival is threatened. Though microcredit may in some cases offer the
possibility of increased cash profits, it also displaces many of the social safety
nets that ensure individual and collective security. For example, most micro-
credit programs in Bangladesh describe their mandatory savings deposits as
social safety net mechanisms, but borrowers explain that they are in fact used
to collateralize loans, as opposed to providing security for borrowers. In addi-
tion, most borrowers report never having access to these savings after they
are deposited, even in cases of loan default or family crisis. At the same time,
weekly loan payments and mandatory savings have supplanted contributions to
community savings mechanisms that formerly provided a safety net in cases of

individual and community crisis (Cons and Paprocki 2010).
For Nijera Kori members and others among the poorest, having a reliable
safety net is a pivotal concern: “For those at the margin, an insecure poverty is
far more painful and explosive than poverty alone” (Scott 1976, 34). Nijera Kori
responds to this threat against social security mechanisms by preserving tradi-
tional social safety nets (where microcredit is eroding them), mobilizing land-
less groups to demand from the government access to social safety nets already
guaranteed, and establishing new social safety nets through social arrangements
grounded in traditional norms of collective support and reciprocal exchange.
Although the Bangladeshi state guarantees social security for all of its citi-
zens, the provision of this right to a broad swath of the population has been
steadily eroded by a combination of neoliberal austerity and government cor-
ruption. Whereas microcredit supporters and agencies propose to replace state
functions with market-based development strategies, Nijera Kori actively cam-
paigns for government transparency and accountability in meeting its commit-
ments to its citizens. In recent years, Nijera Kori groups have used the Right
to Information (RTI) Act, which was enacted in 2009, to promote this trans-
parency and accountability. The RTI Act gives citizens the right to request the
disclosure of information of public interest from public authorities, including
government and NGO officials. The law was designed to allow citizens to hold
the government accountable. Not surprisingly, bureaucracy, misinformation,
and corruption make the law and its usage difficult to navigate. Moreover, the
government’s own primary channel for disseminating information about the
RTI Act is the Internet, resulting in extremely limited access among Bangla-
desh’s rural population (Goswami 2013). Accordingly, Nijera Kori began pro-
viding workshops to its members in 2010 to help them understand and use the
RTI Act effectively. In addition, Nijera Kori landless groups have begun actively
sharing information about the act within their communities through song and
street theater performances.
Through training and collective deliberation, Nijera Kori landless groups
have begun using the RTI Act to request information concerning the provi-
sion of social security entitlements and have already had success not only with
increasing government transparency, but also with pressuring government
agencies to deliver on these groups’ rightful entitlements. In one case, Nijera
Kori members in the village of Charlaxmi successfully used the RTI Act to
expose official corruption in the distribution of poor widows’ benefit cards,
274 Kasia Paprocki
resulting in the distribution of the benefits to thirty-five eligible widows who

had previously not received the allowance. In Gangni Upazila, landless group
members used the act to expose corruption and bribe taking in the implemen-
tation of the Maternal Health Voucher Scheme, through which poor pregnant
mothers are entitled to health care worth approximately US$100; as a result,
twenty eligible pregnant mothers who had previously been denied were able
to access health benefits. In Royganj Upazilla, landless group members used
the act to demand access to land records for the Sonaidanga reservoir, a com-
mon body of water that had been illegally occupied and enclosed by local elites.
As a result of this information request and accompanying mobilization, the
enclosures were removed and the area has become accessible for fishing and
rice planting, thus providing livelihood opportunities for around three hundred
fishermen and their families. While individually these figures represent small
victories, the cumulative effects of Nijera Kori’s organizing through the RTI Act
are significant. They represent not only tangible successes in achieving rights
where they had previously been denied, but also the empowerment of commu-
nities to organize collectively to bring about social change.
In addition to advocating for social security entitlements from the gov-
ernment, Nijera Kori groups also promote greater collective security through
group savings accounts that are administered by each landless group individu-
ally. The rate of contribution is determined through consensus, based on the
financial ability of all members. Groups take full responsibility for managing
the accounts, with bookkeeping assistance from Nijera Kori staff as necessary.
Groups take responsibility for deciding whether and how to distribute these
funds throughout the calendar year and have decided to use group savings for
a range of different individual and collective development and welfare activi-
ties. Often, funds are distributed for community development projects deter-
mined by the group, such as repairing school buildings and roads, digging and
cleaning common-property canals and ponds, and offering support for group
members’ educational and medical needs. Funds are also often used for mobi-
lization activities, including additional trainings and workshops, cultural per-
formances, protests, and legal aid. Finally, many groups reserve a portion of
their savings for redistribution among members’ families during temporary
crises, such as unemployment, agricultural problems, and medical emergencies.
The availability of this group savings prevents members from needing to rely
on microcredit loans in times of extreme hardship. Whereas contributions to
savings programs administered through microcredit programs are considered
by borrowers to function as additional interest payments, collective savings

among landless groups provide a much-needed source of social security for
landless group members.
The Right to Continue Being Agriculturalists
In recent years, an increasingly important tenet of the moral economy of the

peasantry has been recognized as the “right to continue being agriculturalists”
(Edelman 2005; Martínez-Torres and Rosset 2010; Wittman 2009). Numerous
scholars of agrarian studies have examined the processes by which this right has
come under acute threat from a neoliberal developmentalist vision promoting
an “exit from agriculture” and unprecedented depeasantization (Araghi 2009a,
2009b; Glassman 2006; Li 2009; McMichael 2006; Watts 2009).
Microcredit advocates have long claimed that this intervention is the key to
rural development, yet in practice microcredit discriminates against agricul-
tural livelihoods (Bateman 2012c; Harper 2007) and drives agrarian disposses-
sion (Taylor 2011). In Bangladesh in particular, the World Bank advises that the
path to “middle-income status” necessitates the implementation of policies to
shift masses of the rural poor into garment-factory jobs in Dhaka. The World
Bank’s promotion of microcredit programs must thus be understood in relation
to this rural development policy framework, about which a recent World Bank
report explained, “Improving rural productivity by modernizing agriculture
and diversifying nonfarm activities, in order to free up manpower for use in
more productive activities, is also essential for growth” (Muzzini and Aparicio
2013, 48). The hostility toward agriculturalists is demonstrated by the require-
ment (held by every major microcredit provider in Bangladesh) that borrow-
ers begin making loan payments immediately, the week after borrowing, with
no regard for agricultural cycles. Microcredit borrowers in Bangladesh express
resentment toward this system, suggesting that an alternative loan repayment
structure offering a grace period between planting and harvesting would facili-
tate agricultural investment among marginal farmers (Paprocki 2016).
In contradistinction to these lending practices of microcredit agencies and
the agrarian transformations they promote, Nijera Kori’s vision of aspirational
rural life is centered on the fulfillment of citizenship rights and sustainable
agrarian production among all sectors of the rural population. The organiza-
tion promotes this alternative vision for the economic future of rural commu-
nities in Bangladesh by promoting the rights of farmers to continue agricultural
276 Kasia Paprocki
production and by creating new opportunities for collective economic well-

being among its membership.
One example of this commitment is Nijera Kori’s campaign against export-
oriented commercial shrimp cultivation in Bangladesh’s southern coastal areas.
Since the 1980s, the neoliberal promotion of shrimp farming for export has
resulted in marginal farmers being dispossessed of their land and means of
livelihood through ecological devastation, elite land grabbing, and the unre-
strained conversion of land previously used for food production and consump-
tion into land used for export-commodity production (Adnan 2011; Guimaraes
1989; Paprocki and Cons 2014). Microcredit programs in these areas promote
shrimp farming as a small business opportunity, despite clear evidence that
the conversion of farmland to shrimp ponds displaces sharecroppers and day
laborers and results in food insecurity among the poor. Nijera Kori’s cam-
paign against shrimp farming aims to protect the right of small and landless
farmers to keep their land and livelihoods, continue producing food to benefit
local communities, and ensure that profits from local production stay in local
communities.
Another way in which Nijera Kori defends the right of peasants to continue
being agriculturalists is through the promotion and facilitation of cooperative
economic projects among its members. Even as Nijera Kori protects the rights
of its members to continue agricultural production, the organization recog-
nizes that the traditional agrarian economic structure is inequitable and dis-
advantageous to the poorest members of society. By undertaking cooperative
agricultural projects, however, members of landless groups have been able to
increase their family incomes by growing the scale of their agricultural activi-
ties through shared risk, collective economies of scale, and collective secu-
rity. Nijera Kori provides training to interested groups in order to support the
management of large-scale economic activities and encourage practices such
as collective investment and the greater inclusion of women. In 2012 seven-
teen landless organizations came together in the adjacent Nabagram and Bha-
tir Tek villages to engage in joint cultivation on khas land to which they had
collectively gained access. This collective cultivation was particularly signifi-
cant in this region, where day laborers and sharecroppers have traditionally
been forced into exploitative economic arrangements through which they lose
approximately 80 percent of their crops to landlords and moneylenders. These
groups in Nabagram and Bhatir Tek, totaling 318 men and women, took the
initiative to use group savings to purchase a tractor and cultivate 177 acres of
land. In addition to acquiring a tractor for their continued collective use, the
group made a profit from their first rice harvest of over 550,000 Bangladeshi
taka, approximately US$7,500, some of which was invested into a joint account
for the following year’s harvest, while each participating family received fifteen
maunds of rice for their personal consumption. Nijera Kori estimates that the
profits from this harvest alone will ensure the food security of participating
families for up to five months.
Conclusion
An examination of Nijera Kori, the work of its landless group members, and
the politics of its rejection of microcredit not only lend support to the grow-
ing body of criticisms of the microcredit model, but also suggest an alternative
model for understanding and assessing rural notions of justice and exploita-
tion. As Scott (1976, 159) explains, “Disputes over what is exploitative and what
is not are appeals to a normative tradition and not matters to be settled by
empirical inquiry.” Such an assertion might give pause to those who are enthu-
siastic about microcredit research centering on massive randomized control
trials and quantifiable metrics such as “social capital,” from which the voices of
the communities and individuals who are the supposed beneficiaries are con-
spicuously absent (Cons and Paprocki 2008; Maclean 2010). Such empirical
inquiry aside, peasant perceptions of exploitation through microcredit are sig-
nificant and should not be overlooked. Examining microcredit in relation to the
moral economy of the peasantry facilitates an understanding of the historical
and ongoing causes of exploitation, as well as the collective capacity of local
communities to work against it through political struggle.
While Nijera Kori’s approach and accomplishments are extraordinary in a
country where social mobilization has taken a backseat to an unprecedented
saturation of microcredit programs and unbridled enthusiasm for “bottom bil-
lion capitalism” (Roy 2010, 2012), the organization is not unique in its rejection
of the impacts that microcredit and the development project (of which it is a
remarkable example) are having in rural communities throughout the Global
South (McMichael 2004; Rist 1997). Indeed, rights-based peasant movements
are gaining traction around the world and providing social and economic
alternatives to the neoliberal model of capitalist agriculture and development
(Edelman 1999; Escobar and Alvarez 1992; Martínez-Torres and Rosset 2010;
McMichael 2008; Patel 2007; Wolford 2010). Collectively, the work of these
278 Kasia Paprocki
movements “includes re-envisioning the conditions necessary to develop sus-

tainable and democratic forms of social reproduction” (McMichael 2009, 308).
Individually, each struggle takes place in response to very particular political
concerns and trajectories. The recognition that microcredit “doesn’t work”
(Bateman 2010), along with the rejection of capitalist models of development
that such a recognition may entail, necessitates a closer examination of these
diverse trajectories. Nijera Kori offers one such powerful example of the way in
which local communities are imagining and constructing alternative agrarian
futures.
Notes
1. “Social mobilization” refers to the explicit political contestations and rural com-
munity organizing that characterized much of the work of NGOs in Bangla-
desh’s immediate postindependence period.
2. Wolford’s use of “agrarian moral economies” represents a slight departure

from other usages in the agrarian studies tradition, in the sense that Wolford
examines multiple, competing moral economies that exist in a single commu-
nity, reflecting divergent claims and legitimating narratives based on diverse
collective norms and traditions. I avoid analyzing a competing “agrarian moral
economy” of microcredit because while microcredit agencies in Bangladesh do
regularly refer to liberal rights frameworks, they avoid appeals to traditional
rights or local notions of social justice, instead relying on legitimating narratives
rooted in decidedly nonlocal neoliberal conceptions of individual (as opposed
to collective) empowerment. Yet this avoidance does not rule out the possibility
of a global neoliberal moral economy bolstering the microcredit movement.
Ananya Roy and others explore such a possibility in a recent special issue of
the journal Public Culture, in which Roy (2012, 106) argues that “bottom billion
humanity is becoming the grounds of global ethics.” Marcus Taylor (2012, 601)
suggests a similar possibility in his examination of the legitimizing rhetoric
of “financial inclusion,” which he describes as “a discourse that recasts micro-
finance as . . . a global moral imperative.”
Chapter Sixteen
The “Solidarity Economy”

Model and Local Finance
Lessons from New Left Experiments in Latin America?
Introduction
Since the 1990s, many countries in Latin America have been gradually extri-
cating themselves from the nearly continent-wide experiment with neoliberal
policies, an experiment that many independent analysts now view as having
precipitated nothing short of an economic and social calamity (Hershberg and
Rosen 2006; Weisbrot 2006; Weisbrot et al. 2006; Navarro 2007).1 With signs of
economic progress and social reconciliation beginning to appear by the mid-
point of the 2000s, especially in terms of poverty reduction, Latin America’s
disengagement from the Washington Consensus began to accelerate (Panizza
2009). In 2006 as many as twelve governments across this remarkably diverse
continent had made a decisive turn to the left.2 The so-called pink tide had hit
Latin America. Although business elites and right-wing political groups and
parties have fought determinedly to reverse this popular leftward trajectory,
recently achieving power thanks to electoral success in Argentina and after a
judicial coup in Brazil, the important lessons learned during the recent period
of history remain valid.
Of course, the various leftist governments that emerged in the first decade
of the new millennium had significant differences, ranging from the moder-
ate, business-friendly socialism of Brazil and Chile to the radical community-
driven model espoused by Bolivia’s Evo Morales. Nonetheless, in all of these
countries the commitment to find an alternative to neoliberalism was shared by
politicians, local communities, and activists right across the political spectrum,
albeit for different reasons. Venezuela, Ecuador, and Bolivia have been all too
eagerly painted as “populist” by the likes of the Houston Chronicle and many
mainstream, US-based academics (Council on Hemispheric Affairs 2007). But
279
this portrait is misleading, one that has been deliberately created in order to
obscure the strong popular-democratic foundations of all three governments,
as well as the influence of social movements, most notably indigenous move-
ments, that are engaged in the search for development alternatives based on
sustainable and social justice. Even under President Barack Obama, the US gov-
ernment has not let up in its long-standing covert efforts to destroy the legiti-
macy and functioning of all leftist governments in Latin America, most notably
those of Venezuela and Bolivia, in order to bring back US-friendly right-wing
governments (Wikileaks 2015). What is more, contrary perhaps to the outsider’s
view of the continent, alternative visions of development are coming from many
local communities in traditionally conservative countries, notably Colombia.
Because Latin America’s neoliberalism was largely imposed upon the region
by the three most powerful Washington institutions—the US government and
the Washington-based World Bank and International Monetary Fund (IMF)—
the Washington Consensus never had any meaningful roots in Latin America’s
cities and communities, and especially its poorest ones. This opened up a politi-
cal space for numerous anti-neoliberal interventions and programs to emerge
from below, the majority of which also shared the wider goal of developing a
more solidarity-based (local) economy as the primary stepping-stone to sus-
tainable economic and social advancement.
In tandem with important changes to macroeconomic policy since the early
2000s, Latin America’s view of its most high-profile and internationally well-
funded microeconomic policy—microfinance—has also been changing. As the
evidence began to emerge of deleterious impacts, including serious sub-prime-
style problems (notably endemic overindebtedness in the poorest communi-
ties, most recently exposed in Mexico; see Rozas 2014b), automatic support
for microfinance by national governments could no longer be counted upon.
A 2010 IDB publication entitled The Age of Productivity then offered up a very
powerful, though largely indirect, critique of microfinance, arguing that Latin
America’s endemic poverty was a result of its financial system channeling far too
many of its scarce resources into informal microenterprise and self-employment
ventures (see the discussion in Bateman 2013b). Coming from an institution
that is effectively mandated to follow the lead of the neoliberal-oriented World
Bank, this publication represented an unexpected (and possibly unplanned)3
development. A further indication of the change under way is that the govern-
ment of the country widely celebrated for the immense impact microfinance
was supposed to be having on the local economy—Bolivia—began to register
The “Solidarity Economy” Model and Local Finance 281
serious unease at the dominance of the microfinance model and suggested that
it might be having a negative long-term impact on the Bolivian economy (Bate-
man 2013b, 16–17). This turn away from microfinance is part of a broad search
for development alternatives that has taken into account the social ravages of
neoliberalism, indigenous demands for pluricultural recognition and inclusion,
extreme rates of inequality and exclusion, and, in some countries, substantial
portions of the population earning a living entirely from the informal economy.
In this chapter we look at some of the local policy alternatives to microfinance
that exist in Latin America. Some of these interventions emerged in the 1960s as
part of the resistance to the US government’s anticommunist/antileftist agenda,
while other interventions are of a more recent vintage and are part of the con-
temporary resistance to neoliberalism. Collectively, however, these interventions
attempt to recognize the importance of the “local” and the “social” in economic
activity—that meeting human needs should take precedence, wherever possible,
over blind obeisance to market forces. Many of these financial interventions con-
stitute what has since become known as the social and solidarity (SSE) economy
model, which was an especially important feature of Brazil’s development in the
Lula era (Singer 2006) and which, in some important respects, has since escalated
into a direct challenge to neoliberalism (Santos 2006; Utting 2014). Rather than
an “impact evaluation” of these policies, some of which are at their very begin-
ning, we aim to provide a selection of the vast array of alternatives to the neolib-
eral social intervention that is microfinance.
Financial Cooperatives Early On Seen

as the Way to Support the Poor
During the 1950s, as the Cold War got under way, but especially in the aftermath
of the Cuban Revolution in 1959, the US government mounted a major cam-
paign of political pressure, supplemented by outright violence and state terror,
in order to destroy the influence of all communist, socialist, and leftist ideas and
popular movements in Latin America (Gill 2004; see also Bateman, chapter 1,
this volume). No matter that such ideals were supported by the majority of the
population in Latin America, for obvious reasons US powers would not tolerate
them in the Cold War era. As Noam Chomsky (1994) points out, US hegemony
had to be preserved in a region long considered by US policy makers to be
“their own backyard.” This campaign provoked various responses, including
military engagement with the US government and its local proxies in a struggle
for change, but also quiet and careful mobilization at the community level to
promote a local economy based on alternatives to US-style capitalism, such as
cooperatives.
Many leftists and reformers in Latin America chose to mobilize, and one
of the direct results was the gradual construction of networks of local finan-
cial cooperatives that promoted sustainable economic development alongside
greater equality and social justice. For many reasons, however, mobilization was
not an easy option. Due to its incorporation into political bodies during the
authoritarian era, the cooperative movement and its ideals in Latin America
were extensively compromised in the eyes of the poor (Fals Borda 1971). The
leftists and reformers operating in the 1960s thus had to differentiate as much as
possible their bottom-up and genuinely democratic ideas from the preexisting
top-down, antidemocratic structures that had taken root under authoritarian
rule. Nonetheless, they made much progress across Latin America, including
with regard to financial cooperatives (Nash, Dandler, and Hopkins 1976).
One of the most far-reaching examples of leftists and reformers taking the
bottom-up, pro-poor, institution-building option, and successfully creating a
network of financial cooperatives, is in Colombia. The assassination in 1948 of
reformist, pro-poor, liberal presidential candidate Jorge Eliecer Gaitan marked
the beginning of nearly fifty years of civil conflict there. One important response
to Gaitan’s assassination by both the left as a whole and the liberation theology
movement in particular was a focus on practical, pro-poor community-level
ways of securing economic development and promoting equality and social
justice.
Notably, this strategy involved the development of financial cooperatives,
which were seen as the ideal midpoint between exploitative US-style neolib-
eral financial capitalism and big private banks, on the one hand, and ineffi-
cient Soviet-style centrally planned communism, on the other (Fajardo 1998).
In spite of central government indifference, and sometimes outright antago-
nism, the left quickly established financial cooperatives in many of the most
at-risk regions in Colombia, notably in the department of Santander. The finan-
cial cooperative sector subsequently expanded throughout Colombia over the
next forty or so years to become an important feature of the financial system.
In Colombia as a whole, the financial cooperatives were capturing as much
as 21 percent of savings deposits by the early 2000s (Solo and Manroth 2006,
24). And even though their share on the commercial loan side was much less
(around 3 percent), these financial networks played an important role in pro-

moting many other forms of cooperative enterprise across Colombia.
Perhaps most important, the financial cooperatives became an institutional
pillar in those regions in which the liberation theology movement was most
active (most notably Santander), and particularly in the city of San Gil, which
became widely known as the “city of cooperatives” (Bucheli 2015). Thanks in
part to the impetus provided by the financial cooperatives, Colombia’s wider
cooperative sector has been able to expand as well. From 2000 to 2010, for
example, Colombia’s cooperatives expanded their number of employee-
members by 10.6 percent per year, while overall employment over the same
period grew only 3.1 percent per year (Smith and Rothbaum 2013, 6–7). Interest-
ingly, however, the fastest-growing business activity that Colombia’s financial
cooperatives have lately engaged in is the provision of microcredit.4
Community-Based Finance as the Alternative

to Failed Neoliberal Financial Policies
Beginning in the 1950s, Latin America pioneered a new development model

that emphasized the importance of developing the local manufacturing capacity
to produce substitutes for intermediate and capital goods imports, thus captur-
ing the benefits of technical progress, as well as creating local employment and
generating wealth in high-skill areas. This policy was termed import substitu-
tion industrialization (ISI), and it was given much support by the economist
Raul Prebisch, in particular, when he was serving as chief economist at the
United Nations Economic Commission for Latin America (CEPAL). ISI poli-
cies were, of course, heavily criticized not only by the Hayekian economists
of the time, but also by those critical of the authoritarianism associated with
this period. Nevertheless, this period, it is frequently argued, brought about
a period of very real economic and social advancement in the economies of
Latin America (Amsden 2001, 2004; Chang 2007, 27–28). This was especially
so in terms of the development of a substantial manufacturing-led small and
medium enterprise (SME) sector.
However, these advances in manufacturing capacity and technology were
then undermined from the 1980s onward as the ISI model was dismantled
right across Latin America under World Bank and US government pressure.
In its place came a radical free-market agenda that envisaged the ending of all
state activity and guidance and the completely free play of market forces. Local
financial institutions were “neoliberalized,” encouraged to become more market
and profit driven, and they inevitably dropped all forms of targeted investment
and directed credit (Lora 2012). In tandem with this process, the microfinance
sector began to rapidly expand in country after country. The modest industri-
alization gains registered under ISI were soon thrown into reverse and, quite
predictably, replaced with a dramatically expanded raft of informal micro-
enterprises and self-employment ventures mainly based upon “no-growth”
petty trading, importing, and personal services. The well-publicized argument
made by Hernando de Soto (1986)—that engineering a dramatically increased
microenterprise sector would rapidly reduce poverty—was soon shown to be
a destructive miscalculation. Poverty not only rapidly increased across Latin
America as markets increasingly informalized and enterprise sectors deindus-
trialized (IDB 2010; Bateman 2013b), it rose the fastest in the two countries—
Peru and Bolivia (see Helwege and Birch 2007, 19–21)—that were the most
involved in the microfinance movement.
By the 1990s, the social costs of neoliberalism, including inequality, infor-
mality, and increased social exclusion and poverty, had reached a crescendo.
Many governments in Latin America began to revisit and refresh, in a remark-
ably different global economic and political context, the importance of national
industries, local development, and alternative, cooperative approaches to liveli-
hoods, business, and finance. They did so not only to promote economic growth,
but also to meet the demands for inclusion from various social movements that
formed the political basis of the continent-wide rejection of neoliberalism. One
of the central ideas carried over from the old ISI model has been the impor-
tance of local industrial development, in particular, a growing understanding
that a robust manufacturing-led SME sector should be at the core of a dynamic
local economy (Devlin and Moguillansky 2012). However, one cannot hope
to proceed in such a policy direction without the presence of a suitable local
financial system, one that is able to efficiently mobilize local resources (savings,
remittances, etc.) and disburse these resources in such a way as to maximize
support for those SMEs with the most potential for sustainable growth and
important knock-on effects in the local community (e.g., subcontracting, clus-
tering, technology transfer). Indeed, the International Finance Corporation’s
regular surveys of the most important barriers to formal enterprise establish-
ment and growth consistently rank the “lack of/high cost of finance” as one of
the most serious, one that prevents a more sophisticated and growth-oriented
enterprise development trajectory in Latin American countries (see the discus-

sion in Bateman 2013b). As a result of the inappropriateness of the local finan-
cial system that inevitably emerged under neoliberalism, leftist governments
in Latin America have been rediscovering many forms of community-based
finance that work for the common good. A number of examples come to mind
in this context, starting with the emerging global giant in Latin America, Brazil.
After laboring under a series of authoritarian and military governments
propped up by the US government during the Cold War, Brazilians reestab-
lished democracy in 1985, creating the conditions for a vibrant local commu-
nity movement to take root. In 1980 the Workers’ Party (PT) was formed with
the aim of bringing a democratic socialist government into power. In 1984 the
Landless Workers’ Movement (MST) struggled for a fair agrarian reform pro-
cess and, more widely, real social justice (Wolford and Wright 2003). Impor-
tantly, the ending of repression in 1985 meant that a wide variety of progressive
policy interventions and institution-building initiatives became possible. The
rise of both the PT and MST eventually catapulted Luiz Inácio Lula da Silva
(“Lula”) into the presidency on his fourth attempt, in 2003. Lula’s coming to
power led to the establishment of the National Secretariat of Solidarity Econ-
omy (SENAES) within the Ministry of Labor and Employment, a body that was
to provide significant backing to the many bottom-up initiatives that emerged
in the 1980s and 1990s (Neiva et al. 2013).
Brazil’s economic success after 2003 is by now well known to the world.
Whereas it is widely understood that much of this success is due to Brazil’s
developmental state structures, along with national industrial policies that were
carefully evaluated and financed by the state development bank (BNDES), it is
less understood that much of Brazil’s economic and social “miracle” is actually
a function of specifically local financial institutions, including BNDES itself.
Through its local branches BNDES provides a wide range of direct support for
the SME sector: not just discounted loans, as in many other countries, but also,
for example, quality technical support and advice on accessing the most appro-
priate foreign technologies. BNDES also indirectly supports the local economy
through the many “local content agreements” it routinely negotiates and sub-
sequently monitors with any large company seeking one of its favorable loans.
These agreements ultimately provide many valuable subcontracting opportu-
nities for local SMEs, which have greatly facilitated the upgrading of the local
industrial structure.
Brazil has also pioneered networks of financial cooperatives that mobilize
local capital and package it into affordable loans that support the SME devel-
opment process. The most recognized of all of Brazil’s financial cooperatives, as
Bonnie Brusky (2007) reports, is Sicredi. Established in 1902 by a Jesuit priest in
the Rio Grande do Sul, Sicredi rapidly grew to become a federation of 113 finan-
cial cooperatives serving ten of the southern and central states in the coun-
try and, eventually (in 1996), to incorporate its own cooperative bank as well.
Sicredi has carved out an important role for itself in terms of cooperative enter-
prise development, often working with the state body SEBRAE (which supports
micro and small enterprises), rural cooperative federations, and local govern-
ments to implement cooperative development programs. Thanks to political
and practical (financial, technical, and regulatory) support from the Brazilian
state, Sicredi is now part of a wider movement promoting financial cooperatives
in Brazil, which have risen over the past fifteen years from 930 to 1,370 units,
representing an increase of 40 percent despite an inevitable consolidation pro-
cess in recent years. The share of financial cooperatives in the banking sector
overall has risen as well, with significant increases in terms of banking assets,
credit, and deposits (Buendía-Martínez and Tremblay 2012).
Another important local financial institution that emerged after 2003 is the
community development bank (CDB). CDBs are local banks that are managed
democratically by local residents’ associations, with the aim to promote sustain-
able pro-poor enterprise development. The origin of the CDB movement lies
in the Palmeira neighborhood of the 1970s and 1980s and in an NGO formed
by local people to try to create decent employment opportunities for them-
selves. However, it was not until 1998 that the community took the first vital
step to create a bank that they owned and controlled—Banco Palmas (Neiva
et al. 2013). Banco Palmas went on to become the role model for a network of
more than fifty CDBs across Brazil. The funds underpinning the CDBs initially
came from local savings deposits, but later on a number of tie-ups with much
larger banks—notably with Banco Popular do Brasil, Caixa Econômica Federal,
and BNDES—allowed the CDBs to access the resources to underwrite much
larger loans.
The CDB has played an important role in the local community, helping to
identify potentially sustainable local business projects and thereafter provid-
ing affordable financial support to those involved. While most large micro-
finance institutions (MFIs) in Brazil are funded by the state and so pursue a
development mission in the main, many of the smaller community-based for-
profit MFIs support only the most profitable business proposals. In contrast,
the CDBs, precisely because they are community owned and controlled, try
to identify and support those sustainable business projects that add the most
long-term value to the local community. This might mean, for example, sup-
porting a cooperative enterprise rather than an investor-driven enterprise. Or
it might mean simply supporting local enterprises that do not needlessly dupli-
cate business capacity that already exists in the community (that is, new enter-
prises do not simply displace incumbent and already struggling enterprises in
an unproductive and wasteful process of “job churn”; see Bateman and Sinko-
vić, chapter 7, this volume). Overall, the CDBs add to the capacity of the local
community to locate the best possible enterprise projects, to bring them into
life, and to sustain them as they go forward.
For largely the same political reasons, other Latin American countries have
also moved in a similar non-neoliberal and bottom-up development policy
direction. In Ecuador, the provincial government has been very creative in
using state funding to establish progressive enterprise structures such as
cooperatives. Given that state funding has been used to extensively subsidize
enterprise development in the main advanced capitalist countries (Chang 2002,
2011), and especially to absorb the huge costs and high risks involved in nurtur-
ing cutting-edge technologies (Mazzucato 2013), the idea that state funding can
be used to promote the enterprise sector is well established. The difference here
is that state funding is used not to further advance the wealth accumulation
objectives of a narrow business elite, as would appear to be the normal practice
in the advanced capitalist countries,5 but to directly benefit the wider commu-
nity through the construction of, say, profitable capital-intensive cooperative
enterprises that in the past would have presented to the poor an insurmount-
able barrier in the form of a large initial capital requirement. Intergenerational
poverty is often a self-perpetuating process in which the most profitable busi-
ness prospects are “reserved” for the already rich elite who often use inherited
wealth to exploit them while condemning the poor to the least profitable busi-
ness sectors (i.e., informal microenterprises). The rich get richer and the poor
poorer (Piketty 2014).
One example of people breaking out of this vicious start poor, stay poor
circle comes from the southern province of Azuay. Here, a local farmer-owned
cooperative with around one thousand farmer-members was endowed with
a US$1 million dairy-processing plant to release its members from top-down
exploitation and control. In previous times, such farmers would be subject to
the control of rich retailers and processors, who would expect to appropriate
the bulk of the value generated in the agro-supply chain through normal supply
contracts or, more recently, through supposedly more progressive “contract
farming” methodologies. But thanks to the regional government’s develop-
ment fund and disbursement of the grant, the new processing capacity in the
region will not just generate significant returns, it will, crucially, channel the
bulk of these returns down to the farmer-members of the cooperative. The use
of development funding to promote far-reaching pro-poor outcomes and genu-
inely collective capabilities is becoming far more common in Ecuador, not least
thanks to the rising royalties of the country’s natural resource endowments.
Bolivia and the “Movement toward Socialism”
Since Evo Morales’s inauguration as president in 2006, Bolivia has been at the
redder edge of the Latin America’s pink tide. As in Ecuador, the ruling Move-
ment toward Socialism (MAS) party’s vision of development reflects modern-
ization policies. But the country’s outlook also takes into account the globalized
political and economic context, as well as the need to build an inclusive econ-
omy, one that encompasses informal markets and, in particular, indigenous
demands (Maclean 2014b). Bolivia has built alliances with the emerging econo-
mies of the Global South, including Brazil and India, and, in a defining move,
nationalized its hydrocarbons on May 1, 2006.6
Central to the MAS political platform is the support of indigenous social
and political movements, and the search for alternatives to neoliberalism has
included indigenous forms of social, economic, and political organization
(Maclean 2014a). Bolivia’s development strategy is encapsulated in the slogan
“vivir bien,” referring to the Quechua/Aymara vision of the “good life,” and
the first article of the constitution, which stipulates the various dimensions of
plurality to be recognized, includes a recognition of “pluri-economy.” Specifi-
cally, Article 306 describes “community, state, private and public cooperative
economic organization,” in contrast to neoliberal market ideology, which is
predicated on a competitive, profit-maximizing individual as the most rational
Homo economicus.7
In order to construct an institutional framework capable of supporting eco-
nomic plurality as envisioned in the constitution, the MAS government has
explicitly attempted to move away from microfinance as its main policy and
to promote the inclusion of informal and rural economies. Although Bolivia
is celebrated within the microfinance industry for having created a highly
commercially developed, sustainable, and diverse microfinance sector (Navajas

et al. 2000; Otero and Rhyne 1994; Rhyne 2001; Velasco and Marconi 2004),
the microloans that are provided by microfinance banks and other MFIs have
been criticized by Bolivian and international academics and policy makers.
Bolivia stands out within Latin America as having the greatest proportion of
its population earning a living in the informal sector, a consequence of the par-
ticularly harsh structural adjustment policies imposed upon the country in
1985. Although some believe this “creative regulatory framework” allowed the
microfinance sector to grow, diversify, and achieve sustainability (Velasco and
Marconi 2004, 520), others blame the continued existence of informal mar-
kets, and the exploitation that occurs within them, on the prevalence of micro-
finance as the principal strategy for local development and inclusion. The cycles
of debt that people have incurred have been strongly criticized by social move-
ments and, in particular, women’s groups that resist and protest against what
are argued to be exploitatively high interest rates (Vishmidt 2013).8 The small
amounts on offer from MFIs, and the rate of repayment required by many, pro-
grammatically favor petty commerce over production (Maclean 2012), which in
the long term limits the potential for inclusive economic development.
Although the political processes involved are complicated, the MAS gov-
ernment has, since it assumed power, sought to bolster alternative forms of
credit for micro, small, and medium enterprises that support livelihoods, pro-
mote inclusion in the mainstream economy, and support production rather
than petty commerce. This process has been supported by the nationalization of
the country’s gas industry, an increased focus on tax collection, and a commit-
ment to investing sovereign reserves in national development. A development
bank—the Banco Desarrollo Productivo (BDP)—was established in May 2007
with US$60 million to support productive SMEs (Bate 2007). The Bolivian gov-
ernment has committed to investing its newly enhanced oil and gas revenues
into bottom-up development, and the BDP is one of the conduits that it plans to
use to achieve this goal through more generous funding of its activities.
With very little financial support behind it, and certainly dramatically fewer
resources than the major microfinance banks in Bolivia that harvest huge
amounts of local savings and remittances (such as BancoSol), the BDP was
thought to be limited in scope. Nevertheless, in 2014 the government announced
that various credits, subsidized by government reserves, would be available to
promote inclusion and economic production. These included credits only for
those who had productive enterprises and offered at an annual rate of 6 percent
(La Razón 2013). “Producers,” including restaurant owners, some cooperatives,

and farmers, could then benefit from larger loans with longer repayment terms
that offered opportunities for growth and formalization. Although it is too
early to assess the effects of these policies, in a context of high gross domestic
product growth, increases in the mandated minimum wage, and investment
in social infrastructure to support an inclusive economy, these initiatives have
widespread support.
The criticism of the BDP is that it is very difficult to access the credits it
supports. To qualify for a crédito productivo, potential borrowers have to dem-
onstrate that they have a clean credit record and have a guarantor who is pre-
pared to secure the loan against property, which many potential borrowers do
not own (La Razón 2013). The scaling up of loans and the focus on production
may represent additional barriers for women borrowers, which microfinance
focused on (see Maclean, chapter 14, this volume). Nevertheless, the BDP has
vastly expanded its portfolio compared to its institutional predecessor, Nacional
Financiera de Bolivia, with a portfolio at the end of 2006 of US$26.6 million
(Weisbrot, Ray, and Johnston 2009). In August 2013, Bolivia adopted the Ley
de Servicios Financieros (Financial Services Law), which stipulated that the
state’s role is not only to regulate the banks, but also to ensure that their activi-
ties “support the economic and social development of the country.”9 This is a
radical change from the previous law, passed in 1993, which guaranteed the
power of banks to set interest rates that would “be freely agreed between finan-
cial intermediaries and users” (La Patria 2014). As a result of this law, further
legislation has been passed stipulating that “banks have a maximum term of five
years to bring at least 60% of their loan portfolio to the productive sector and
social housing. Mutual financial institutions should allocate 50% of their loans
to social housing.”10 Banks are now required to provide credit for social housing
and productive enterprises at interest rates of around 6 percent. Again, it is far
too early to assess the impact of these reforms. But it is clear that they represent
a major shift away from the free-market ethos that encouraged the rapid and
expansive growth of the Bolivian microfinance sector and that many now hold
responsible for the country’s attenuated development from the 1980s to the turn
of the century (Bateman 2013b).
The commitment to recognize pluri-economy and the indigenous political
momentum behind the search for alternatives to neoliberalism in Latin America,
but particularly in Bolivia, have led researchers, politicians, and policy makers
to look toward Andean organization for alternative ideas about development
(Zoomers 2006), including credit. The Andes is generally considered to be an

area of low usury due to the diverse forms of credit that have supported the
development of Andean markets for centuries (Lagos 1994; Larson and Harris
1995). Ideals of reciprocity and cooperation underpin the way that indigenous
economic associations work, as well as the way in which money flows in indige-
nous communities. Local moneylenders, whom MFIs tend to assume are usuri-
ous, can offer loans at various levels of interest and repayment schedules that,
despite being “informal,” may be preferable to those offered by MFIs and, rather
than being exploitative, may be controlled by community norms and mores that
are overlooked in more formal development policies (Maclean 2012). Credit can
also be acquired by offering usufruct rights on land or lodging at no interest
rate—known as anticrético—an option that is a higher risk but cheaper form of
credit (Farfan 2004). Such informal forms of lending are precisely what is over-
looked when MFIs have assumed that local credit is “usury.” It is not a given
that the terms of a bank are preferable to local, traditional forms of lending. The
“Anglo-Saxon” model of loans with interest rates and regular repayments may
well be more exploitative than traditional forms of lending.
Colombia’s Local Experiments
In more neoliberal-oriented Colombia, we find similar types of local experi-

mentation and creative funding of the enterprise sector that suggest widespread
political support for bottom-up development policies. That Colombia, which
has by no means been part of Latin America’s turn to the left, is also embrac-
ing such policies speaks to the widespread demands for alternatives to neolib-
eral policies, not only from social movements and those on the left, but also
from business leaders who recognize investment in infrastructure and people
as a vital element in economic development (Maclean 2014c). The once narco-
terrorist-blighted Medellín is often cited as an example of a city that prospered
after it pioneered a new solidarity-driven development model known as “social
urbanism.” Some have claimed that the policies adopted by the city to pro-
mote inclusion and redress inequality played a role in the dramatic reduction
of violence over the last twenty years. Political actors in Medellín resist such a
simplistic association, however, and are keen to point out the continuing issues
that the city has with its legacy of violence, not least the state-led “pacifica-
tion” of civilian neighborhoods that resulted in multiple deaths and condem-
nation from Amnesty International, among other human rights organizations
(Amnesty International 2005; Maclean 2015). Nevertheless, there is a consen-

sus that the investment in iconic architecture, public spaces, mass transport
innovations, and, crucially, social and economic development “from below” has
improved life in the city and begun to address the vast breaches of inequality
and exclusion that many believe to underpin the violence.
Implicit in Medellín’s approach to development is a recognition that unlike
earlier experiments with the intervention elsewhere on the continent, micro-
finance alone will not create an inclusive economy (Bateman, Maclean, and
Duran-Ortiz 2011). Three key policies, emblematic of the innovations that
have come from Latin America since its “lost decade,” have framed the city’s
approach to micro and small business development: continued municipality
ownership of the main utilities company, participatory budgeting, and the soli-
darity economy, encapsulated in Medellín by the slogan “Medellín: City of Soli-
darity and Competitiveness.”11
The municipality of Medellín greatly benefits from its ownership of Empre-
sas Públicas de Medellín (EPM), the main utilities provider founded in 1955
in Antioquia, which has attained iconic status in the city on account of its
advanced headquarters architecture, its provision of world-class training and
education, and its raft of social development programs in the region that involve
both employees and their trade union. Crucially, however, it is the 30 percent
of EPM’s profit that is mandated to be channeled into the municipality’s bud-
get and which accounts for around 24 percent of the city’s total revenue that
has proven to be decisive in terms of the city possessing the financial resources
to promote sustainable local economic development. This financial largesse
has been used by the municipality to support a wide variety of programs that
have upgraded the region’s wider industrial and service base and improved its
infrastructure.
The concept of participatory budgeting originally hails from Porto Alegre,
Brazil. Medellín’s leaders learned from Brazil’s example, and participation is at
the core of the city’s social urbanism. Medellín’s participatory budget was first
implemented by Mayor Juan Gómez Martínez in 1998. It was further devel-
oped by Mayor Sergio Fajardo into the participatory planning and budgeting
program, which aimed to bring government and planning in general closer to
the citizenry and civil society, as well as to legitimate local government and pro-
mote transparency. A portion of the budget for each neighborhood is allocated
for project contracts; organizations bid for these contracts; and the awards are
made by a panel that includes community members. The amounts involved in
this process have almost doubled, from 59 million Colombian pesos in 2004
to over 100 million in 2008 (Valencia Agudelo, Aguirre Pulgarín, and Flo-
rez Acosta 2009). Examples of programs funded by the participatory budget
include art and theater exhibitions dedicated to memory, community kitchens,
and football parks. As much as an economic initiative, participatory budget-
ing is a political initiative that is designed to empower communities to more
directly determine their own priorities and increase the transparency of how
funds are spent (Uran 2010). The specific ways of implementing the partici-
patory budget and the kinds of programs that it supports may be contentious;
nevertheless, this initiative has overturned decades of development in which
investment was steered by elites who did not understand the priorities of people
in the city’s poorer, excluded neighborhoods (Maclean 2015).
Behind Medellín’s commitment to both solidarity and competition is a desire
to increase the production and value chains in the city (Bateman, Maclean, and
Duran-Ortiz 2011). This desire is as much about the city’s need to attract for-
eign direct investment on the global stage as it is about supporting the local
economy, but the coincidence of these agendas has produced some progres-
sive policy initiatives nevertheless. In addition to supporting community asso-
ciations and microenterprises, Medellín’s leaders have developed larger scale
initiatives to encourage inclusive economic development. Of the revenue that
the municipality derives from EPM (estimated to be around US$250 million
in total), 7 percent will be set aside between 2013 and 2021 to build and main-
tain a major new science, technology, and innovation (STI) hub in Medellín. A
total of six strategic clusters have been defined as key to this initiative—electric
power; textile/apparel and fashion design; construction; business tourism,
fairs, and conventions; medical and dental services; and technology, informa-
tion, and communication technologies (ICT)—with the aim of building a more
inclusive city, while also enabling Medellín to promote itself on the global eco-
nomic stage.12
Among the other programs to promote economic inclusion are the
CEDEZOs—centers of zonal development. These centers are located in the
library parks and bring together all the services available to support small- and
micro-scale entrepreneurs in the communities. They provide information about
potential sources of credit, training, and small business competitions that can
result in contracts with the city’s chain stores. The CEDEZOs address informa-
tion gaps and the difficulties in accessing mainstream markets and have been
successful in identifying entrepreneurs who will be able to make the transition
from a local, informal microenterprise to a small business capable of reaching

the mainstream market (Bateman, Maclean, and Duran-Ortiz 2011).
As part of the drive to encourage small businesses to link more with the
mainstream, communities have been encouraged to build their own associa-
tions so they can bid for contracts on public work. Examples of such associations
include those focused on catering, childcare, and construction. Approaching
public works in this way potentially facilitates local job creation and changes the
perception of cronyism in the allocation of public works contracts. In addition,
a high-profile campaign including local government support and a public ser-
vice television campaign encourages the formation of cooperatives, as opposed
to individual, micro, informal enterprises.
Chile’s Hidden Interventions
Ever since the US government–sponsored coup in 1973 overturned the elected

government of Salvador Allende, Chile has been neoliberal at the national gov-
ernment level. However, important local elements of the solidarity economy
model were quietly allowed to thrive and eventually turned out to be crucial in
terms of ensuring sustainable industrial development in Chile. In addition, the
forms of social-solidarity building that emerged at the local level have helped
to ameliorate and repair the destructive social impacts of neoliberalism as
practiced at the national level. Routinely portrayed by neoliberals as a “success
story,” Chile actually owes much of its impressive economic success to several
heterodox subnational interventions and proactive financial institutions.
But the starting point for such a trajectory, and parallel to the situation of
EPM in Medellín, is that the neoliberal Chilean state chose in the 1970s to retain
ownership of CODELCO, the world’s largest and most profitable copper pro-
ducer. It did this in order to be able to channel a very sizeable chunk of the
revenues into local industrial development (though funds were also used to
equip the Chilean army, navy, and air force). In addition, a number of power-
ful subnational industrial development bodies and social venture capital funds
were constructed, most notably Fundación Chile and CORFO (Corporación de
Fomento de la Producción de Chile). These bodies have patiently developed and
financed new enterprises, SME clusters, and entire export sectors from scratch,
the most famous examples probably being farmed salmon and soft fruits (see
Kurtz 2001; Schrank and Kurtz 2005, 686–88). More recently, the Chilean
government has established an innovation fund to support SMEs that is man-

aged locally and directly financed by its revenues from CODELCO.
Conclusion
Very much as in the United Kingdom during the original neoliberal experi-
ment unrolled by the Thatcher government after 1979, local and regional gov-
ernments across Latin America have mounted a creative bottom-up challenge
to the legitimacy and functioning of the destructive neoliberal policies imple-
mented at the national level. The solidarity economy model that emerged in
Latin America in the 1990s was the local leftist response to the national-level
neoliberalism that for two decades dominated and destroyed much of that con-
tinent’s previous industrial progress, as well as its traditionally powerful accu-
mulations of social solidarity, tolerance, and trust. Experience to date points to
the fact that the local financial institutions associated with the solidarity econ-
omy model represent an effective platform upon which to develop sustainable
local industry in Latin America and are certainly better than the commercial-
ized microcredit model that, with international support, came to dominate
Latin America from the early 1990s onward.
Notes
1. Neoliberalism has also been a major economic and social disaster in post
communist Eastern Europe, Asia, and Africa (Andor and Summers 1998;
Stiglitz 2002; Chang and Grabel 2004).
2. In the twelve elections that year, governments in Argentina, Brazil, Chile,

Bolivia, Ecuador, Peru, Venezuela, and Uruguay, as well as the Central Ameri-
can countries of Nicaragua and Honduras, were all found to be left of center.
3. Within the IDB, it turned out that not all individuals and departments respon-
sible for microfinance programs were aware of the explosive nature of this par-
ticular publication, and much rancor was created when it was rightly portrayed
as a major attack on the microfinance model (Bateman 2013b, 22).
4. See http://www.microdinero.com/index.php/english/nota/5283/microcredit
-the-fastest-growing-portfolio-of-financial-cooperatives-in-colombia.
5. Mazzucato’s book achieved significant media attention on its release because it

coincided with a stream of revelations showing that almost all of the technology
giants she highlighted carefully avoided paying taxes on their global operations,
mainly by using offshore entities in ultra-low tax regimes, notably Ireland, as

the “pretend” center of global operations. Apple is often seen as one of the main
offenders (see Guardian 2013; Bloomberg Personal Finance 2013). In 2016 Apple
was ordered by the European Commission to pay the Irish government more
than US$13 billion of what was said to be roughly the amount of tax it had cre-
atively avoided in recent years (Guardian 2016).
6. Bolivia’s nationalization of hydrocarbons involved the renegotiation of contracts

with various multinational corporations, including Total, Repsol, and BP, all
of whom signed new contracts with the government that, unlike the previous
documents, respected Bolivian sovereignty over its natural resources (Rochlin
2007).
7. The official English translation of the constitution of Bolivia 2009 can be found
here: http://archive.forensic-architecture.org/wp-content/uploads/2012/11
/Bolivia_Constitution_2009-Official-Translation.pdf.
8. These protests were dismissed by microfinance professionals and support-

ive academics as “a handful of ‘professional’ union organisers” (Marconi and
Moseley 2006, 249).
9. Ley de Servicios Financieros, no. 393, http://www.bnb.com.bo/Portal/Paginas

/rse_ley_de_servicios_financieros_n_393.html.
10. See website of the Bolivian Ministry of Economy and Public Finance, December
21, 2013, http://www.economiayfinanzas.gob.bo/index.php?opcion=com_prensa
&ver=prensa&id=3089&seccion=306&categoria=5.
11. Or “Medellín: Ciudad Solidaria y Competitiva.”
12. See http://www.camaramedellin.com.co/site/Cluster-y-Competitividad

/Comunidad-Cluster/Medellin-Ciudad-Cluster.aspx.
Conclusion
It’s the Politics, Stupid
Economics is a political argument. It is not—and can never be—

a science; there are no objective truths in economics that can be
established independently of political, and frequently moral,
judgements. Therefore, when faced with an economic argument,
you must ask the age-old question “Cui bono?” (Who benefits?)
—Ha-J oon Chang, Economics: The User’s Guide, 2014
Economics is not a science. Instead, as Ha-Joon Chang concludes, along with

many others from Adam Smith to Karl Marx, John Maynard Keynes, John
Kenneth Galbraith, and recent Nobel Prize in Economics winners Amartya
Sen, Paul Krugman, and Joseph Stiglitz, economics is intimately connected
to the politics and ideologies of particular groups in society, groups that ulti-
mately seek to benefit from the economic policies that they promote and help
to sustain. We recently saw this connection exposed with stunning clarity after
2008 in the reaction to the Great Recession that began on Wall Street thanks
to monumental levels of greed, fraud, insider dealing, speculation, and other
antisocial and criminal forms of behavior. Rather than denounce and agree to
prohibit such actions, many economists, politicians, and commentators con-
tinued to support the neoclassical economic models, neoliberal political theo-
ries, and “efficient market” nostrums that had just piloted the global economy
into a brick wall (Mirowski 2012). The overwhelming evidence showing that
these theories, models, and beliefs were patently false did not lead to any real
concession of error, but actually served to make the dogma stronger, effectively
creating what John Quiggin (2010) has called a “zombie policy”—a policy that
remains stubbornly alive and popular in elite circles even after the evidence
overwhelmingly shows that it has failed the vast majority of the population.
297
Perhaps nowhere is the power of doctrine and ideology over reality more
apparent than in relation to the contemporary microfinance movement. The
chapters in this book have traversed many areas of inquiry, interrogated numer-
ous possibilities relating to the role and impact of the microfinance model, and
explored multiple varieties of microfinance in order to assess its long-term con-
tribution to development. If there is a common message in all of them, it is that
one can only explain the contemporary microfinance phenomenon if one refers
back to the politics and ideology of microfinance. The notion that microfinance
emerged and was subsequently promoted because it is an intervention that can
successfully address poverty and underdevelopment is not just simplistic, as
even most microfinance advocates now accept, it is largely false.
The rationale for the microfinance industry was built on far-reaching claims
of poverty reduction and “bottom of the pyramid” development models, an
approach to development that attracted widespread critique from the outset.
After recent demonstrations of the inadequacies of the evidential bases that
microfinance constituted a development panacea, one might have expected
that the intervention would be phased out. But despite evidence, critique, and
even scandal, the microfinance movement has continued to occupy a promi-
nent place on the international development agenda, albeit increasingly hid-
den under the banner of “financial inclusion.” The continued enthusiasm for
microfinance confirms what many critics have argued for decades: it is a politi-
cal intervention, not a technical fix. Its “success” in policy terms is a product
of its support from the world’s international financial institutions and gov-
ernments interested in promoting neoliberalism around the world. What may
have started as a community intervention in the 1970s, has been co-opted by
institutions with goals far removed from those first enunciated by its pioneers.
Microfinance has effectively been exposed, we would argue, as the zombie
development policy par excellence.
The contributors to this volume have drawn on economic, social, and politi-
cal data and experiences to examine the contemporary microfinance phenome-
non and expose it to critical reflection, with a view to explaining its remarkable
resilience. What has been demonstrated is that far from unequivocally improv-
ing the lives of the poor, the contemporary market-driven microfinance model
has disadvantaged and exploited the poor on a number of levels. The chapters
in this book have rehearsed this unpalatable fact across a number of important
metrics and locations and have provided abundant evidence of ineffectiveness
and dead-end trajectories. Microfinance’s initial popularity was wrapped up in
Conclusion 299
its ability to provide an affordable, self-help-driven way of addressing poverty

and underdevelopment. The initial claims that the provision of small loans on
the basis of a group guarantee could help people working in rural, subsistence,
or informal contexts access much-needed credit, and therefore reduce vulnera-
bility to usury, promote local development, and empower women, were based
on experiences with small-scale communities of nongovernmental organization
(NGO)–led credit groups. As the microfinance industry took off, these claims
were maintained, but the metrics of success that garnered the most attention
focused on repayment rates and the sustainability of institutions in financial
terms. Although penetrating political, social, and economic critiques of this
approach grew, microfinance institutions could hype their few client success
stories—most microcredit-induced businesses actually fail in a short period of
time—in order to give the impression that microfinance was indeed working
for the global poor as a whole.
Hence, the international development community’s love affair with micro-
finance significantly deepened. Over the 1990s, microfinance also appealed
to critical, progressive development practitioners because, despite being the
quintessential neoliberal social intervention, it also involved forming and sup-
porting groups and giving relevant training. In the aftermath of harsh struc-
tural adjustment packages deployed around the world, microfinance was a
social intervention that could attract funding and so open a space for NGOs
and community organizations that were working on income generation in the
informal economy. Microfinance thus resonated with “third way” solutions to
the development impasse. As international financial institutions became more
involved, however, funding became increasingly dependent on the ability to
demonstrate financial sustainability and profitability. Microfinance advocates
were able to convince their supporters that poverty could be “fixed” while also
turning a healthy profit and leaving wholly untouched the accumulated power
and wealth of elites. They produced an image of microfinance that encompassed
far more than a bare-bones description of a high-interest loan offered against a
group guarantee that mainly targeted women. Publicity, reports, and documen-
taries promoting microfinance marshaled deeply troubling tropes of the “third
world woman” who needed “rescuing” with a capital sum that could promise
“empowerment” in the form of the financial independence. These ideas reso-
nated far more with the concerns of the developed world, and the predomi-
nantly Western funders, including peer-to-peer lenders keen to contribute to
resolving poverty, who championed the intervention, than with the complex
lives of microfinance beneficiaries. Their struggles with the oppressions and

exclusions caused by colonialism, feudalism, and, not least, global capital-
ism require a structural analysis that is situated in an understanding of local
material realities and struggles, rather than a quick-fix loan.
The overall result, as geographer David Harvey (2014, 186) pointedly notes,
was that the international development community fully bought into “the won-
drous fiction that the informal sector of social reproduction which dominates
in many cities of the developing world is in fact a seething mass of micro-
enterprises that need only a dose of microfinance (at usurious rates of inter-
est pocketed at the end of the trail by major financial institutions) in order to
become fully fledged card-carrying members of the capitalist class.”
Escaping poverty was once again down to the poor individual herself, who
could become a successful microcapitalist if she really wanted to. There was
no need for state agency and the exercise of collective capabilities that, free-
market rhetoric and neoliberal mythology aside, actually mark out all of the
most successful economic development and poverty-reduction episodes in
modern history.
But surpassing even these combined negative outcomes for the poor is the
overarching and uncomfortable reality that the microfinance model was never
actually brought into play in order to improve the lot of the poor in any mean-
ingful or transformational way, as the evidence highlighted in part 2 more than
attests. Instead, one of the largely hidden ambitions of those promoting micro-
finance has been to take off the table a number of interventions and “collective
capabilities” that Chang (2002) documents and history shows have been quite
decisive in raising the living standards of the poor and in providing dignity,
security, and improved welfare. That is, microfinance supporters have always
carefully pitched the intervention as the(ir) preferred alternative to a whole host
of powerful forces for positive social change, such as trade unions, social move-
ments, pro-poor political parties, an active “developmental state,” and collective
pressure to fairly distribute economic wealth, power, and opportunity. For a
small elite, moreover, the microfinance model has allowed for and accelerated
their further accumulation of staggering amounts of wealth, power, visibility,
popularity (later turned into wealth through speaking tours, book sales, etc.),
and kudos. The arrival of the microfinance model has thus made its own con-
tribution to the almost unprecedented growth in inequality and the increasingly
well-documented transfer of resources and wealth into the hands of a very nar-
row elite (Galbraith 2012; Piketty 2014).
Conclusion 301
Part 3 of this volume offered some such analyses, and contributors focus-
ing on case studies from across the world explored the way that microfinance
has played out on the ground. Chapters show the unsuitability of microfinance
to agriculture and the provision of public goods, as well as the complex ways
in which it interacts with local politics and the priorities of elites. Consistent
across these chapters is a reminder that microfinance is political. The ideology
of consultants and practitioners promoting microcredit for watsan or agricul-
ture, despite clear a priori arguments that it would be inappropriate, as well as
empirical evidence of its failure to work on its own terms, shows how the neolib-
eral presumptions around microfinance are re-created by the specific actions of
individuals in specific contexts. When loans for the poorest are promoted by the
richest, questions must be asked about whose interests are really served. When
this is done in postconflict situations, and, in the South Africa example, in the
wake of racialized oppression that many argue continues, the potential oppres-
sion that the lender can inflict on the borrower takes on a particularly ugly char-
acter. The specific politics behind the dramatic fall of Grameen Bank—which
has been the flagship of microfinance throughout its time at the forefront of the
development agenda—is a reminder that the prominence of this intervention,
as well as its downfall, has always been more about the priorities of national and
global elites than the beneficiaries it claims to serve.
Finally, the alternative directions offered in this volume constitute much
more than practical solutions to the problems that microfinance claimed to
address. Neoliberal interventions such as microfinance have always been bol-
stered by the idea that there is no alternative. Research critical of microfinance
has been denied a hearing on the grounds that unless an alternative were pro-
moted at the same time that microfinance was being critiqued, the critique was
not valid. This formulation defies logic and is based on the unproven and highly
disputable assumption that microfinance would be better than nothing. While
the opening sections of this book were dedicated to a wide-ranging and incisive
challenge to such unquestioning support for microfinance, the volume would
not be complete without a discussion of other interventions that can better
meet microfinance’s exaggerated claims. Numerous interventions, policies, and
programs can achieve the progressive outcomes to which microfinance advo-
cates also lay claim: to encourage socioeconomic development from below, to
improve development indicators, and to empower women. They do not, how-
ever, resonate to the same extent with the neoliberal agenda of placing respon-
sibility for poverty alleviation with the poor, equating development with the
extension of capital markets, and promising to make a profit for investors. The
fact that these interventions have not gained the levels of celebrity and fund-
ing that microfinance has further supports our argument that it has gained the
support it has for political rather than technical reasons. Many of these alterna-
tives draw on historically successful models. Cooperatives are a time-honored
form of community development that has its roots in Western Europe but reso-
nates with forms of economic organization all over the world, including those
economic organizations of indigenous people in Latin America that are cur-
rently contributing to that continent’s rejection of the neoliberal model. The
mutually supportive foundations and joint decision-making imperatives of the
cooperative sector may actually resonate more with poor communities than
microfinance, engendering as they do important “collective capabilities,” trust,
mutual support, and a concern for social justice and ecological sustainability
that can nourish a local community far better than the mass provision of tiny
loans.
In terms of women’s role in development, women’s work has always been
crucial to survival, reproduction, and production, but romanticizing work that
is the consequence of unequal and oppressive gendered burdens of labor, along
with the gender biases inherent in the supposedly neutral “science” of eco-
nomics, is not the way to support women in developing contexts. Investment in
social infrastructure, as well as direct, organized political challenges to gendered
barriers, including discrimination, that women face in economic spaces across
the world, is required if “women’s empowerment” is truly on the agenda. Rather
than essentializing women’s work as mothers, entrepreneurs, and community
heroines, we need to recognize the diversity of women’s contributions. Rather
than starting with the clichéd images of womanhood upon which microfinance
has been sold, we can develop deep and diverse understandings of the struggles
that women are taking part in, such as the landless movement in Bangladesh
and elsewhere, in order to combat gendered oppression. And this process might
well involve the richest not turning a profit.
Today, the microfinance movement is on the defensive: its one-time support-
ers deserting the fold and renaming their microfinance organizations “financial
inclusion” advocacy bodies, its remaining claims of success exploding one by
one. The case for microfinance is crumbling before our eyes, as, the contributors
to this book demonstrate, it should be.
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Participants in the School for Advanced Research advanced seminar “Microfinance:
Assessing the Economic and Cultural Implications of Microfinance on Poverty from
Cross-Cultural Perspectives,” co-chaired by Lamia Karim and Milford Bateman,
September 25–27, 2012. Standing, from left: Kate Maclean, Dean Sinković, Maren
Duvendack, Meena Khandelwal, Philip Mader, Anu Muhammad. Sitting, from
left: Carla Freeman, Lamia Karim, Milford Bateman. Photograph courtesy of
Jason S. Ordaz.
Contributors
Domen Bajde
Department of Marketing and Management, University of Southern Denmark
Milford Bateman
Department of Tourism and Economics, Juraj Dobrila University at Pula;
International Development Studies, Saint Mary’s University
Maren Duvendack
School of International Development, University of East Anglia
Carla Freeman
Department of Women’s, Gender, and Sexuality Studies, Emory University
Charlotte Heales
Department of Geography, King’s College London
Lamia Karim
Department of Anthropology, University of Oregon
Meena Khandelwal
Departments of Anthropology and Gender, Women’s and Sexuality Studies,
University of Iowa
Kate Maclean
Department of Geography, Environment and Development Studies, Birkbeck,
University of London
Philip Mader
Institute of Development Studies, University of Sussex

Africana Studies Department, John Jay College of Criminal Justice, City
University of New York
357
358Contributors
Sonja Novković
Sobey School of Business, Saint Mary’s University
Kasia Paprocki
Department of Development Sociology, Cornell University
Elliott Prasse-F reeman

Department of Anthropology, Yale University
Khadija Sharife
Center for Civil Society, University of KwaZulu Natal
Dean Sinković
Faculty of Economics and Tourism, Juraj Dobrila University at Pula
Marcus Taylor
Department of Global Development Studies, Queen’s University
index
Absa, 165, 178 Association for Social Advancement

Accion, 24, 28, 148, 200, 243, 249 (ASA), 112, 208, 216
Accountability, 3, 52, 271–73 attrition rate, 35, 227, 228
accumulation by dispossession, 243 austerity, 173, 254, 273
Adidas, 106, 211 Awami League, 209
administrative costs, 2 Azerbaijan, 95
affect, 7, 63, 70, 71, 77, 78, 81–85, 187, 194, Azuay, 287
196, 224
Africa, 9, 17, 27, 60, 62, 67, 78, 81, 161–69, Banco Desarrollo Productivo (BDP), 289,
170–79, 185, 219, 224, 239, 240, 245, 295, 290
309–48 Banco Palmas, 286
African Bank, 168, 170, 174, 175, 176, 178 Banco Popular do Brasil, 286
African National Congress (ANC), 164, BancoSol, 25, 289
165, 179 Bangladesh, 10, 12, 26–31, 39, 69, 76, 77,
Agricultural Development and Marketing 107–23, 129, 203–17, 245, 246, 265–78,
Corporation (ADMARC), 222 302
agriculture, 57–60, 64, 79–81, 139, 143, Bangladeshi Nationalist Party (BNP), 209
148–50, 152, 157, 162–64, 186, 218–33, Barry, Nancy, 129
240, 265–78, 285–86, 290, 301 Basix, 154
Albright, Madeleine, 211 Basque region, 247
Allende, Salvador, 294 Bayport, 178
Alliance for Progress, 19 Beneria, Lourdes, 62
altruism, 54, 62, 89, 109 bhadrolokh, 215
Amnesty International, 291, 292 Bill and Melinda Gates Foundation, 183,
Amsden, Alice, 108 187, 188, 219
Andhra Pradesh, 8–9, 10, 147–60, 183, biopolitics, 71, 75
191–92, 197 Black, William, 136, 176
anticrético, 291 Blue Financial Services, 178
anti-politics, 78, 79, 82, 83 BNDES, 285, 286
anti-poverty, 17, 19, 75, 108, 151 Bolivia, 12, 25, 26, 27, 129, 186, 261,
apartheid, 9, 161–79, 307 279–84, 288, 289, 290, 295, 296
Argentina, 279, 295 bonuses, 8, 25, 42, 105, 134, 136, 148, 156,
Arias Sánchez, Óscar, 210 243, 245
Ashoka, 104 Bornstein, David, 214
Asia, 27, 60, 67, 81, 118, 129, 149, 155, 181, Bornstein, Erica, 54
219, 239, 240, 295 Boserup, Ester, 61
Asian Development Bank (ADB), 27, 205, Bosnia, 8, 127–46, 177
207
359
360Index
bottom of the pyramid, 170, 194, 195, 196, collective capabilities, 3, 266, 268, 288,
298 300, 302
BRAC, 86, 112, 208, 216, 267 Colombia, 12, 280, 282, 283, 291
Branson, Richard, 13, 211 colonialism, 3, 6, 7, 50, 51, 55, 57, 58, 60,
Brazil, 24, 279, 281, 285, 286, 288, 292, 295 63, 65, 81, 149, 240, 256, 260, 263, 270,
breakdown position, 259, 260 300
commercial banks, 9, 11, 128, 144, 150, 153,
Caixa Econômica Federal, 286 154, 178, 240, 241, 247
Caja Laboral, 244 commercialization, 25, 39, 150, 152, 166,
Cambodia, 261 167, 173
Campaign Group to Assist the Poorest commodification, 184, 199
(CGAP), 27, 39, 41, 150, 166, 200, 219, common resources, 61
257 community-based finance, 237, 238, 285
capitalization, 189 community development bank (CDB),
Capitec Bank, 168, 170, 174, 175, 176, 178 286
care economy, 264 community labor, 254, 255, 256, 263
cash crops, 223, 225 Compartamos Banco, 28, 242, 243, 248,
cash transfers, 45, 81, 85, 229, 262 249
caste, 50, 152, 157 Congressional Gold Medal, 205
celebrity, 1, 7, 13, 29, 55, 67, 90, 302 conscientization, 266, 268
cell phones, 208 consultancy, 192, 193, 194, 195, 196, 197,
Center for International Private Enter- 198, 199, 200, 301
prise (CIPE), 142–43 consumer culture, 57, 89, 207
Centros de Desarrollo Empresarial Zonal consumers, 89, 97, 120, 241
(CEDEZOs), 293 consumption, 21, 31, 36, 53, 65, 71, 82, 85,
Chang, Ha-Joon, 20, 72, 297 86, 100, 109, 118, 132, 149, 157, 162, 170,
charity, 50, 51, 54, 59, 63, 65, 88, 89, 90, 91, 179, 183, 184, 199, 220, 230, 231, 232, 233,
94, 95, 98, 99, 244, 271 238, 277
childcare grants, 262 consumption spending, 109, 132, 179
children, 43, 53, 57, 59, 61, 62, 80, 81, 88, cooperative banking, 17
117, 185, 186, 254, 258 cooperative credit, 240
Chile, 279, 294, 295 cooperatives, 4, 12, 13, 17, 71, 104–6, 110,
Chirac, Jacques, 210 162, 213, 237–40, 247, 248, 261–62, 276,
Chomsky, Noam, 18, 281 281–90, 294, 302
civil society, 10, 52, 292 cooperativist, 5
Čizmić, Selma, 130 Corporación de Fomento de la Produc-
clientelism, 270 ción de Chile (CORFO), 294
Clinton, Bill, 91 Corporación Nacional del Cobre de Chile
Clinton, Hillary, 10, 107, 211 (CODELCO), 294, 295
clusters, 293, 294 corporate social responsibility (CSR), 115,
Cold War, 18, 281, 285 244
collateral, 2, 12, 26, 38, 40, 153, 223, 246, corruption, 65, 111, 191, 214, 272, 273, 274
256, 257, 261, 262, 272 Council of the European Union, 142
Index 361
Counts, Alex, 106 136, 140, 141, 192, 194, 199, 203, 205, 216,
Coutzee, Gerhard, 168 222, 242, 267
Credit Bureau Monitor (CBM), 169 double bottom line, 241
crédito productivo, 290 Duflo, Esther, 80
credit unions, 11, 237–49
Crnkić, Kenan, 138 Eastern Europe, 295
Cuba, 20 economic inclusion, 288, 290, 292
currency devaluation, 221 economic shocks, 150, 220
economies of scale, 181, 276
Damon, Matt, 13, 183, 200 Ecuador, 12, 279, 287, 288, 295
Danone, 106, 116, 118, 123, 211 education, 36, 49, 62, 113, 183, 185, 190,
debt, 3, 6, 10, 21, 38, 45, 46, 58, 59, 71, 72, 216, 239, 241, 254, 255, 266, 271, 292
73, 86, 122, 129, 135, 148–50, 153, 155, electricity, 186
169, 170, 173, 178, 183, 184, 189, 194, 196, elites, 6, 8, 18, 20, 21, 25, 29, 49, 53, 59, 75,
198, 200, 206, 212, 220, 223, 228, 230, 78, 120, 143, 163, 170, 173, 191, 204, 215,
246, 247, 289 216, 270, 272, 274, 276, 279, 287, 293,
deindustrialization, 140 297, 299, 300, 301
Delhi, 65 employment, 3, 30, 50, 57, 113, 117, 133, 141,
delinquency rates, 241 143, 171, 224–27, 283, 286; salaried, 136,
democracy, 18, 50, 60, 66, 106, 119, 180, 138, 175, 181, 225, 226, 229, 230; wage
209, 215, 249, 285 labor, 57, 227, 229, 267
Department for International Develop- empowerment, 4, 9, 10, 12, 34, 36, 50–57,
ment (DfID), 166, 222 59, 66, 70, 100, 139, 149, 152, 211, 259,
depeasantization, 275 260–68, 270, 274, 278, 299, 302
depoliticization, 113, 267 Empresas Públicas de Medellín (EPM),
derivatives, 242 292–94
De Soto, Hernando, 1, 24, 260, 284 Enterprise Allowance Scheme, 22
development aid, 37, 54 enterprise culture, 22
developmental state, 3, 28, 113, 285, 300 entrepreneurship, 1, 2, 22, 26, 50, 57, 73,
development banking, 150 87, 103, 121, 140, 184, 199, 206
development impasse, 299 Escobar, Arturo, 84
development organizations, 204 ethnicity, 50, 255
Dhaka, Bangladesh, 116, 118, 211, 275 European Bank for Reconstruction and
digital payment, 28 Development (EBRD), 27, 130, 137, 144,
discipline, 33, 41–44, 151 145
discrimination, 264, 302 European Stability Initiative, 142
disempowerment, 3, 37, 139 evaluations, 73, 199
displacement, 22, 90, 115, 132, 133, 134, evaluators, 192, 199
144, 172 evidence, 4, 7, 8, 10, 17, 28, 29, 33–41, 44,
dividends, 25, 105, 114, 115, 116, 174, 213, 70, 76, 77, 81, 85, 86, 109, 119, 120, 121,
245 123, 129, 131, 133, 134, 136, 139, 156, 167,
donors, 27, 34, 42, 52, 53, 54, 58, 59, 61, 69, 171, 187, 194, 213, 229, 246, 252, 253, 276,
70, 89, 90, 91, 92, 94, 99, 100, 102, 127, 280, 297, 298, 300, 301
362Index
Fajardo, Sergio, 292 Galbraith, John Kenneth, 297

farmers, 123, 157, 186, 207, 208, 216–19, Gandhi, Sonia, 209
272–76, 287, 290 Gates, Bill, 13, 40, 219
Farm Input Subsidy Programme (FISP), gender, 3, 12, 50, 55, 57, 61–66, 139, 140,
222 157, 251–64, 271, 302
fees, 99, 107, 138, 154, 155, 158, 170, 175, Germany, 17, 238, 247
180, 181, 189, 193, 204, 205, 230 Ghana, 88
female circumcision, 55, 56 global capitalism, 300
feminism, 5, 6, 12, 49–67, 204, 215, 216, Global Financial Crisis, 130, 169, 174, 176,
251–64; liberal feminism, 6, 49, 56, 57, 239, 251, 254, 257, 263
65, 260; neoliberal feminism, 56; trans- Global South, 3, 40, 61, 67, 102, 277, 288
national feminism, 59 Gómez Martínez, Juan, 292
feminist economics, 12, 260 governmentality, 42–44
Ferguson, James, 52, 72, 79, 81, 84 government bailouts, 245
fertilizers, 221–22 Grameen Bank, 10, 26, 27, 69, 104,
feudalism, 300 106–22, 186, 203, 205–17, 237, 242, 246,
financial cooperatives, 11, 237, 247, 282, 252, 301; Friends of Grameen, 210
283, 285, 286 Grameen Bank Commission, 107, 108,
financial inclusion/exclusion, 9, 28, 29, 31, 110, 112, 116, 122, 212–15
40, 73, 147–50, 151, 153, 157, 158, 166–69, Grameen Danone (GDFL), 104, 107,
178, 180, 223, 232, 278, 298, 302 116–19, 121
financialization, 6, 37, 184, 199, 251, 257 Grameen Kalyan, 207
financializing poverty, 6, 37 Grameenphone, 114–16, 123, 208
financial literacy, 33, 239 Grameen Polli Phone, 208
financial services, 33, 150, 151, 178, 196, Grameen Telecom, 104, 113–17, 121, 208
219, 220, 238, 241, 247, 251, 256, 263 great recession, 239, 241, 297
financial sustainability, 12, 64, 105, 151, group guarantee, 2, 256, 257, 259, 299
164, 173, 223, 251, 256, 263, 264, 299 group lending, 40, 43, 223, 228
Finbond, 178 group savings, 274, 276
FinMark Trust, 166, 167, 168 groupthink, 183, 195, 198
Flannery, Matt, 90, 91
Food and Agriculture Organization Half the Sky (documentary), 7, 50, 51,
(FAO), 219 54–56, 61, 64, 65, 255
food security, 162, 222, 233, 277 Hanna, Mazharul, 115
foreign aid, 19, 51, 58, 63, 185, 217 Harper, Malcolm, 38, 242
foreign investment, 25, 57 Harvey, David, 300
Foundation for International Community health care, 105, 183, 184, 185, 190, 254, 274
Assistance (FINCA), 24, 76 Heineman, Thomas, 69, 207
Fraser, Nancy, 112 Heinemann, Tom, 204
fraud, 8, 25, 76, 111, 131, 136, 139, 145, 176, 297 heroism, 24, 50, 51, 61, 62, 64, 66, 77, 120
Freedom Charter, 164 hire purchase, 132
Freire, Paulo, 266 HIV/AIDS, 67, 185
Friendly Societies, 17 households, 10, 35, 36, 39, 57, 58, 61, 62,
Index 363
informal microenterprises, 176; petty

63, 64, 132, 133, 135, 148–50, 154, 155, commerce, 142, 227, 289
157, 158, 169, 178, 185–93, 198, 199, 200, infrastructure, 10, 19, 61, 113, 114, 123, 155,
223–30, 231, 233, 252, 253–60 190, 191, 225, 243, 254, 257, 261, 264,
humanitarianism, 7, 52, 88, 89, 100, 101 290–92, 302
human rights, 58, 73, 167, 194, 206, 291 Integrated Rural Development Pro-
gramme (IRDP), 150
immunizations, 216 Inter-American Development Bank
impact, 3, 4, 5, 28, 33–37, 39, 40, 44, 45, 53, (IDB), 24, 27, 31, 261, 280, 284, 295
73, 91, 92, 93, 95, 99, 101, 104, 108, 127, interest rates, 2, 25, 38, 39, 45, 92, 98, 99,
132, 134, 135, 140, 144, 152, 157, 159, 168, 136, 142, 150, 151, 154, 158, 167, 170, 181,
185, 188, 192–97, 227, 245, 247, 248, 254, 230, 238, 241, 243, 263, 289, 290, 291
267, 280, 281, 286, 290, 298 international aid, 20, 49, 240, 252
import substitution industrialization International Cooperative Alliance
(ISI), 283, 284 (ICA), 237
income-generating activities (IGAs), 1, International Day of Cooperatives, 237
170, 206, 229, 262, 264 international development, 1, 2, 5, 10, 11,
income generation, 2, 31, 299 17, 18, 20, 21, 23, 26, 27, 28, 29, 37, 93,
income grants, 45 103, 111, 127, 128, 129, 130, 131, 136, 137,
indebtedness, 9, 10, 69, 134, 155, 158, 178, 143, 145, 161, 165, 166, 204, 242, 243,
195, 208, 211, 215, 217, 228, 240; over- 245, 252, 298, 299, 300
indebtedness, 9, 11, 130, 133–35, 138, International Finance Corporation, 284
140, 144, 157, 165, 169, 170, 171, 175, 177, International Financial Institutions (IFIs),
179, 247, 280 52, 144, 147, 222, 298, 299
India, 31, 36, 43, 69, 118, 123, 129, 147–60, International Fund for Agricultural
183, 191–93, 195, 196, 198–200, 203, 205, Development (IFAD), 219
209, 240, 288 International Labour Office (ILO), 2
Indian National Congress, 209 International Monetary Fund (IMF), 20,
indigeneity, 13, 123, 280, 281, 288, 290, 52, 66, 144, 205, 207, 221, 222, 280
291, 302 International Rescue Committee (IRC),
Individual Household Method (IHM), 188
223, 233 International Year of Microcredit 2005,
individualism, 51, 57, 60, 62, 65, 106, 110, 205
185, 191, 259 investors, 25, 28, 40–42, 46, 90, 98, 129,
inequality, 3, 4, 13, 20, 31, 65, 89, 119, 134, 148, 154, 173, 175, 195, 197, 205, 242–45,
163, 165, 179, 206, 262, 265, 270, 271, 302
281, 284, 291, 292, 300 irrigation, 72, 183, 185, 186, 190, 199, 261
informality, 1, 2, 8, 9, 13, 23, 24, 31, 45, 57, Islam, 58, 59, 203, 206, 210
58, 109, 140–43, 146, 150, 156, 157, 163, Italy, 247
164, 167, 169, 171–73, 176, 177, 179, 180,
200, 207, 252, 258, 260–64, 280, 281, Jackley, Jessica, 90
284, 287–89, 291, 294, 299, 300 JD Group, 178
informal lenders, 2, 167, 258, 262, 263
364Index
job creation, 22, 116, 132, 134, 169, 247, 294 M4P (making markets work for the
Jobra, 26 poor), 166
Johannesburg Stock Exchange, 178 macroeconomics, 79, 221, 226, 280
Malawi, 10, 11, 219–33
Kennedy, John, 19 Malegam, 158
Kenya, 77, 80 Marikana, 9, 178, 179
Keynes, John Maynard, 297 marketing, 49, 87, 88, 97, 128, 162
Khula Enterprise Finance Ltd., 165 Marx, Karl, 297
Kirkinis, Leon, 174 mashonisas, 178
Kiva, 7, 40, 50, 58, 69, 70, 85, 87–102 matrilineal, 228, 231
Kivafriends.org, 88, 93–99, 101 Medellín, Colombia, 291–94, 296
Kristof, Nicholas, 54, 55, 56, 61, 65, 77, 83 men, 33, 59, 62, 65, 253–56, 258–61, 267,
Krugman, Paul, 297 276; husbands, 60, 206, 211, 229, 231,
255, 260
land grabbing, 123, 276 Mexico, 4, 28, 242, 243, 280
landlessness, 12, 157, 212, 216, 265, 266, microcapitalists, 26, 29, 300
268, 269, 270, 271–77, 302 microcredit institutions (MCIs), 9, 127,
Landless Workers’ Movement (MST), 285 128, 129, 130, 131, 132, 134, 135, 136, 137,
land reform, 271, 272 138, 144, 145, 146, 161, 164, 165, 167, 170,
Lane, Diane, 55, 65 173, 176, 177, 178
Latin America, 1, 12, 13, 18, 19, 24, 25, 26, Micro Credit Regulatory Authority
27, 30, 31, 62, 163, 177, 181, 279–96, 302 (MCRA), 212
Lehne, Hans Fredrik, 208 microdebt, 170
Lesotho, 79 microenterprises, 1, 8, 9, 22, 23, 24, 30, 31,
Ley de Servicios Financieros, 290, 296 38, 71, 101, 108, 109, 131, 132, 133, 134,
liberalization, 139, 152, 157, 166, 167 139, 141, 142, 144, 146, 150, 154, 163, 167,
liberation theology, 19, 282, 283 171, 172, 173, 176, 180, 187, 207, 237, 246,
LIDER, 130, 146 247, 261, 280, 284, 287, 293, 294
liquidity, 148, 159 Microfinance Information Exchange
livelihoods, 1, 56, 93, 147, 157, 219, 220, (MIX), 40
223–25, 228, 230, 232, 271, 272, 274–76, microfinance investment vehicles
289 (MIVs), 42, 128
loan officers, 42, 43, 138, 247 microinsurance, 13, 28
loan recovery, 205, 212 microleasing, 28
loan sharks, 1, 263 microloans, 1, 2, 6, 7, 25, 35, 37, 42, 90, 101,
local economic development, 23, 142, 162, 114, 117, 129–35, 140, 144, 146, 152, 157,
164, 167, 176, 232, 242, 246–48, 252, 280, 167, 170, 175, 184–86, 191, 217, 246, 247,
282, 284, 285, 289, 292, 293, 299 253, 289
local initiatives project (LIP), 128, 129, micromacro paradox, 261
131, 144 microsavings, 13, 28
LOK, 137, 140, 145, 146 Mikrofin, 131, 136, 137, 145
Lonmin Corporation, 179 Millennium Development Goals
Lula (Luiz Inácio Lula da Silva), 281, 285 (MDGs), 205
Index 365
mining, 177 nonbanking financial companies, 153

Minus Two Policy, 209, 210 nongovernmental organizations (NGOs),
modernity, 50, 60, 62, 216 10, 12, 25, 49–54, 66, 69, 80, 128, 150–53,
modernization, 79, 150, 252, 262, 288 188, 192–95, 198, 199, 200, 204, 205,
Mondragon Corporation, 244 209–12, 214–17, 221, 233, 251, 266–68,
moneylenders, 41, 43, 156, 157, 162, 240, 271, 273, 278, 286, 299
245, 276, 291 nonrepayment, 170
Monsanto, 106, 107, 123 Norwegian Agency for Development
moral economy, 51, 265, 266, 269, 270–72, Cooperation (NORAD), 207, 208, 222
275, 277, 278 NUM (National Union of Mineworkers),
Morales, Evo, 279, 288 178
mortgages, 240
Movement toward Socialism (MAS), Obama, Barack, 78, 205, 249, 280
288–89 Old Mutual, 178
Mukherjee, Pranab, 209 One World Action, 253
multinational corporations (MNCs), 106, Operation Flood, 118, 123
118, 177, 296 outreach, 74, 158, 159, 165, 188, 263
mutual financial institutions, 290 overlending, 148, 155
MYC4, 92 oversight, 108, 110, 158, 173, 211, 212, 272
Mzansi, 31, 167, 168, 169
Packages Corporation Ltd, 110, 111
National Credit Act, 167 Pakistan, 77, 110, 123, 203, 204
National Credit Union Administration, 241 Panacea, 3, 4, 31, 61, 70, 77, 204, 255, 298
nationalization, 165, 211, 214, 289, 296 participatory budgeting, 292
National Science Foundation, 4 patriarchy, 50, 55, 58, 60, 61, 206, 210
National Secretariat of Solidarity Econ- patrilineal, 60, 231
omy (SENAES), 285 payday lenders, 178, 239, 241
National Union of Mineworkers (South peasants, 265, 270, 276
Africa), 178 peer-to-peer (P2P) lending, 7, 69, 91, 101,
natural resources, 18, 59, 221, 240, 271, 102
288, 296 PepsiCo, 183, 199, 200
Nedbank, 178 Permanent Settlement Act, 270
neoliberal/neoliberalism, 3, 6, 13, 20–29, Peru, 24, 25, 30, 39, 88, 129, 284, 295
49, 52, 56, 57, 66, 71–75, 120, 128, 142, petroleum, 221
150, 166, 171, 173, 204, 212, 251, 254, philanthropy, 49, 51, 54, 66, 87–91,
262–68, 271, 273, 275, 284–95, 297–302 99–101, 192
New York Times, 54, 56, 66, 75, 77, 83, 181, Pink Book, 27
210, 214 pink tide, 279, 288
Nijera Kori, 12, 216, 265–78 pluri-economy, 288, 290
Nobel Committee, 206, 208 political economy, 5, 37, 55, 76, 82, 265,
Nobel laureate, 203, 210, 215 266, 271
Nobel Peace Prize, 10, 13, 26, 69, 103, 203, pop development, 49, 50, 54, 59, 65, 66
208 Porteous, David, 166, 168
366Index
Porto Alegre, 292 remittances, 109, 134, 140, 141, 217, 258,
postcolonial, 50, 57, 59, 240, 258 284, 289
postconflict, 127, 128, 140, 143, 186, 301 repayment, 26, 39, 74, 93–99, 101, 117, 133,
postwar, 8, 127, 128, 130, 131, 132, 139, 143 134, 135, 138, 142, 149–51, 158, 189, 228,
poverty: poverty faith healer, 71; poverty 229, 238, 246, 256–58, 275, 289–91
management, 73, 75; poverty porn, 54; repayment rates, 2, 42, 43, 94, 99, 154, 156,
poverty-push, 172; poverty reduction, 252, 258, 299
2, 3, 4, 9, 12, 19, 23, 26, 27, 28, 31, 39, 44, reproductive health, 55, 216
76, 104, 109, 118, 123, 143, 168, 171, 223, reproductive labor, 51, 254–55, 264
279, 298 Reserve Bank of India (RBI), 150, 151, 158,
power relations, 51, 149, 152 159
Presidential Medal of Freedom, 205 Rhyne, Elisabeth, 148
private sector, 23, 26, 66, 83, 103, 112, 142, Richardson, Dave, 243
151, 164, 194, 195, 199, 211 risk, 11, 19, 56, 59, 71, 82, 116, 118, 130, 138,
privatization, 53, 59, 166, 184, 199, 212 151, 154, 155, 159, 165, 167, 188, 191, 192,
Prizma, 130, 131, 137, 138, 139, 145 219, 220, 221, 224–30, 232, 242, 245, 255,
ProCredit, 128 257, 258, 276, 282, 291
productivity, 23, 74, 141, 179, 223, 227, 232, Robinson, Mary, 210
275 Roodman, David, 3, 31, 37, 44, 69, 70, 73,
profitability, 11, 39, 45, 115, 116, 119, 128, 91, 92, 98, 99, 101, 122, 232
149, 156, 158, 159, 163, 168, 173, 174, 177, rotating savings and loans associations
178, 188, 199, 208, 217, 243, 248, 286, (ROSCAs), 162
287, 294, 299 rural banking, 152
profiteering, 3, 9, 28, 41, 130, 173, 197, 242, rural cooperatives, 286
248 rural development, 3, 150, 157, 204, 205,
Program for Investment in the Small 216, 221, 255, 275
Capital Enterprise Sector, 24 rural finance, 152
public goods, 10, 183–99, 301 Rustenburg, 177, 178, 181
public lending, 152 Rwanda, 83
public sector, 79, 185, 191, 194, 206 Ryan, Meg, 65
race, 49, 50, 57, 165, 255, 260 Sachs, Jeffrey, 25

Raiffeisen, Friedrich Wilhelm, 17 safety nets, 272
Rajan, Raghuram, 159 Saldi, Zainab, 140
randomized control trials (RCTs), 4, 34, San Gil, 283
35, 70, 85, 277 sanitation, 10, 183, 184, 185, 187, 188,
Rankin, Katherine, 64 190–99
Reagan, Ronald, 20 Sarkozy, Nicolas, 211
Real People, 178 savings, 33, 39, 82, 128, 134, 141, 151, 153,
RED, 50, 53, 67 155, 192, 213, 223, 224, 238, 241, 244,
reductionism, 65 245–48, 261, 272–75, 282, 284, 286, 289
regulation, 148, 158, 159, 289 scandal, 10, 28, 66, 77, 78, 242, 298
religion, 50, 59, 65, 255 School for Advanced Research (SAR), 4
Index 367
School of the Americas, 18 social development, 4, 179, 244, 290, 292

Schultz, George, 211 social enterprise, 8, 52, 103, 104, 105
Schulze-Delitzsch, Franz Hermann, 17 social entrepreneur, 82, 83, 113, 119, 120,
Schwab Foundation for Social Entrepre- 140
neurship, 104, 121 social entrepreneurship, 86, 90, 91, 104
Scott, James, 17, 269 social housing, 290
SEBRAE, 286 social inclusion, 232
securitization, 40, 155, 159 social indicators, 4
self-employment, 2, 8, 21–27, 68, 141, 142, social investors, 42
173, 176, 179, 280, 284 social justice, 59, 79, 106, 179, 238, 265,
self-help, 2, 18, 22, 63, 151, 154, 191, 193, 278, 280, 282, 285, 302
200, 207, 299 social movements, 289, 300
self-help groups (SHGs), 151–55, 193 social networks, 12, 152
Sen, Amartya, 109, 297 social performance, 187
Serbia, 135, 146 social protection, 262, 264
sharecroppers, 267, 272, 276 social relations, 70, 149, 152, 231
shareholders, 11, 100, 105, 110–12, 116, 121, social reproduction, 278, 300
122, 149, 154, 156, 160, 174, 176, 213, 214, social security, 3, 273–75
243, 248, 251 social stigma, 151
Sheikh Hasina, 204, 208, 209, 210, 212 social urbanism, 291–92
Shining Path, 24 solidarity economy, 292
shock therapy, 25 solidarity groups, 43
Sicredi, 286 Somalia, 55, 56
Sierra Leone, 88 South Africa, 9, 79, 161–82, 301
Sinclair, Hugh, 92, 245 South America, 219
Skoll Foundation, 104 Soviet Union, 18, 19, 20
SKS, 154, 155, 205, 208, 217 Spandana, 154
small and medium enterprises (SMEs), StanBank, 178
8, 23, 72, 128, 141, 142, 162, 163, 164, 176, Stassen, Riaan, 174
177, 179, 188, 261, 283–86, 289, 294, 295 state-led development, 4, 251
smallholders, 150, 152, 157, 219, 220, 232, Stiglitz, Joseph, 297
271 structural adjustment, 11, 12, 55, 207, 254,
Smith, Adam, 119, 297 289
social business, 8, 45, 79, 103–23, 193, 194, subprime, 6, 8, 143, 176
196, 217, 237 sub-Saharan, 219
social capital, 230, 253, 264 subsidy, 2, 45, 105, 150, 151, 157, 162, 164,
social class, 3, 6, 7, 38, 50, 53, 55, 57, 65, 69, 187, 188, 192, 193, 194, 220, 222, 223
70, 101, 121, 157, 196, 215, 216, 255, 260, subsistence, 57, 60, 62, 224, 257, 269, 270,
261, 262, 271, 292, 300; middle classes, 299
59, 173, 207, 215; upper middle classes, suicide, 3
69, 70 Synergia, 137
social collateral, 2, 40, 252, 256, 257 systematic reviews, 34
368Index
taxation, 128, 146, 165, 185, 207, 208, 289, Wall Street, 8, 25, 135, 136, 208, 210, 239,
296 246, 297
Telenor, 113–16, 123, 208, 211 War on Terror, 58, 59
Thatcher, Margaret, 20, 22, 23, 30, 121, 295 Washington Consensus, 19, 222, 279, 280
The Micro Debt (documentary), 107, 204, Water.org, 188, 200
207, 214 water and sanitation (watsan), 183,
Three Cups of Tea (book), 59 187–99, 301
tobacco, 11, 36, 222 WaterCredit, 199, 200
trade unions, 3, 4, 11, 12, 24, 28, 237–49, Welby, Justin, 239
251, 262, 300 welfare, 3, 23, 25, 28, 37, 57, 152, 173, 230,
training, 33, 171, 223, 268, 273, 276, 292, 274, 300
293, 299 Winfrey, Oprah, 13, 91
transactions costs, 151 Wolfensohn, James, 210
transparency, 3, 7, 91, 98, 102, 167, 273, women, 1, 4, 6, 10, 12, 33, 34, 37, 44,
292, 293 49–67, 70, 112, 114, 116, 127, 139, 140,
143, 151, 152, 155, 192, 203–16, 223, 231,
UBank, 178, 181 251–64, 267, 276, 289, 290, 299, 301,
UK government, 3, 22, 34, 133, 166 302; rural women, 114, 204, 206, 212
unemployment, 163, 165 women’s empowerment, 50–57, 260–68
United Kingdom, 20, 21, 22, 30, 239, 248, women’s entrepreneurship, 63
295 women’s financial independence, 252,
United Nations Development Program 259, 260, 299
(UNDP), 142 World Bank, 20, 24, 25, 27, 29, 31, 52, 64,
United Nations Economic Commission 109, 128–33, 136, 141, 143, 144–46, 150,
for Latin America (CEPAL) 283 164, 166, 169, 183, 196, 200, 205, 207,
United States of America, 1, 7, 18, 19, 20, 210, 252, 270, 272, 275, 280, 283
21, 22, 24, 50, 54, 55, 57, 63, 84, 107, 143, World Council of Credit Union, 243
163, 211, 239, 240, 248 World Trade Organization (WTO), 82
US Agency for International Develop- World Vision, 258
ment (USAID), 24, 25, 27, 184, 186, 188 World War II, 20, 139
US government, 6, 18, 19, 20, 24, 26, 30, WSS, 187
142, 163, 280, 281, 283, 285, 294 WuDunn, Sheryl, 51
usufruct rights, 256, 291
usury, 69, 240, 263, 291, 299, 300 Year of Microcredit, 237
Yousafzai, Malala, 60
Venezuela, 12, 279, 280, 295 Yugoslav civil war, 128
Veolia, 211 Yunus, Mohammed, 7, 10, 13, 26, 27, 69,
Vietnam, 27, 123, 129, 192, 261 70, 76, 77, 103–23, 203–17, 237, 243
violence, 9, 19, 58, 65, 66, 84, 172, 179, 187,
209, 268, 281, 291, 292 Žene za Žene, 139, 140, 146
vivir bien, 288 Zia, Khaleda, 209
volunteering, 58 Zidisha, 92
vulnerability, 3, 85, 100, 148, 150, 174, 177,
262
economics • anthropology bateman
maclean
• Seduced and Betrayed
milford bateman is school for advanced research advanced seminar series
a Visiting Professor of
economics in the Faculty
EXPOSING THE CONTEMPOR ARY
of Economics and
Tourism at Juraj Dobrila
MICROFINANCE PHENOMENON
University of Pula and
an adjunct professor
in international devel- Microfinance, the disbursement of tiny loans to the
opment studies at Saint poor so that they can undertake income-generating

Mary’s University.
activities, is the most popular international develop-
kate maclean is a
Senior Lecturer in the
ment policy of recent years. The contributors to this
Department of Geo- multidisciplinary volume consider the origins and out-
graphy, Environment
and Development comes of microfinance from a variety of perspectives
Studies at Birkbeck, and contend that it has not been a successful approach
University of London. Edited by Milford Bateman and Kate Maclean Foreword by James K. Galbraith
to development.
Over the last twenty years, the contributors note, micro-
finance policies have exacerbated poverty and exclusion,
undermined gender empowerment, underpinned a mas-
sive growth in inequality, destroyed solidarity and trust,
and, overall, manifestly weakened those local economies
contributors
of the global South in which it has reached critical mass.
Domen Bajde By exploring historically successful alternatives that
Milford Bateman
deploy “collective capabilities”—including cooperatives,
Maren Duvendack
Carla Freeman credit unions, and state-led development strategies—the
Charlotte Heales book brings the politicized nature of microfinance into
Lamia Karim
Meena Khandelwal sharp relief. The authors expose the intimate relationship
Kate Maclean between neoliberalism and microfinance as the overarch-
Philip Mader
Jessica Gordon ing rationale that keeps the microfinance model alive in
Nembhard spite of all the evidence of its failure.
Sonja Novković
Kasia Paprocki This timely and comprehensive analysis, founded on
Elliott Prasse-Freeman qualitative anthropological research, unpacks the ideas
Khadija Sharife
Dean Sinković
and values that have allowed microfinance to “seduce”
Marcus Taylor the world and blind so many to its corrosive effects.
isbn 978-0-8263-5796-0
90000
university of new mexico press
unmpress.com • 800-249-7737 9 780826 357960 > school for advanced research advanced seminar series

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economics • anthropology bateman

Since 1970 the School for Advanced Research

Edited by Milford Bateman and Kate Maclean

School for Advanced Research Press • Santa Fe

Library of Congress Cataloging-­in-­Publication Data

Cover photograph: Tuca Vieira

Introduction Setting the Scene 1

Part One Background

Chapter Two Poverty Reduction or the Financialization of Poverty? 33

Part Two Seduction

Chapter Four Petit Bourgeois Fantasies: Microcredit, Small-­Is-­Beautiful

Chapter Five Kiva’s Staging of “Peer-­to-­Peer” Charitable Lending:

Chapter Six Muhammad Yunus’s Model of Social Business: A New, More

Part Three Betrayal

CHapter eIGHt From Tigers to Cats?: The Rise and Crisis of

Chapter Nine The Destructive Role of Microcredit in Post-­apartheid

Chapter Ten Public Goods Provision Aided by Microfinance: Groupthink,

Chapter Twelve Agricultural Microfinance and Risk Saturation 219

Part Four Alternatives

Chapter Fourteen Microfinance and the “Woman” Question 251

Chapter Sixteen The “Solidarity Economy” Model and Local Finance:

Conclusion It’s the Politics, Stupid 297

that is practically everywhere similar. It is a pattern of unpayable loans for tran-

Setting the Scene

Milford Bateman and Kate Maclean

This book examines from a multidisciplinary perspective the functioning, out-

of colonization, rapid urbanization, and dynamics of gender, class, age, and

This book originated in a four-­day seminar supported by the National Science

a very lively and stimulating discussion informed by economics, politics, cul-

or by his fellow social business (and social enterprise) enthusiasts, to support

deregulated (i.e., self-­regulated) environment that existed prior to 2010, but

effectively. Heales contextualizes her argument with a nuanced analysis of the

The Political Economy of Microfinance

Researchers in the international development policy field, notably James Fer-

most recalcitrant individuals and institutions as possible before subjecting them

The International Development

increases in personal, corporate, and foreign debt helped to attenuate resistance

In the early 1980s, the importance of such neoliberal-­oriented self-­employment

The realization began to dawn within the neoliberal international develop-

released from a supposedly crushing regulatory burden, and also generously

The Rise of Muhammad Yunus and Grameen Bank

As the microfinance sector was developing in Latin America, Dr. Muhammad

needed trade unions, social movements, public enterprises, a comprehensive

But What to Do When the Economic

Beginning with the now-­infamous Initial Public Offering (IPO) of Comparta-

6. In fact, it is now increasingly accepted that the diversion of Latin America’s

7. Hulme (2008, 6) writes, “[Yunus] energetically promoted microenterprise credit

9. My interpretation of the simple “mistakes” made by Pitt and Khandker is that

Poverty Reduction or the

Maren Duvendack and Philip Mader

For decades, many have claimed that microfinance successfully alleviates

The Microfinance Success Story: What Is the Evidence?

Despite the popularity of microfinance, we have no clear evidence to show that

by unsystematic, outdated, and, in some cases, arguably misleading literature

(health, education) or indirect (income or consumption expenditures) indica-

The Microfinance Hype?

beneficial effects on the well-­being of poor people or that it empowers women?

Microfinance offers a more subtle and potentially more durable means

Library of Congress Cataloging-in-Publication Data

Chapter Four Petit Bourgeois Fantasies: Microcredit, Small-Is-Beautiful

Chapter Five Kiva’s Staging of “Peer-to-Peer” Charitable Lending:

Chapter Nine The Destructive Role of Microcredit in Post-apartheid

This book originated in a four-day seminar supported by the National Science

deregulated (i.e., self-regulated) environment that existed prior to 2010, but

In the early 1980s, the importance of such neoliberal-oriented self-employment

Beginning with the now-infamous Initial Public Offering (IPO) of Comparta-

beneficial effects on the well-being of poor people or that it empowers women?

(Rowley 2011). In their analysis of development fund-raising, John Cameron

4. This quote, sometimes with slight variations in wording, is attributed to Chris

Elliott Prasse-F reeman

This year-old self-titled “experience company” (under30experiences.com)

The Times presents microfinance as iconic of a hip habitus, the intellectual

As “microfinance” has become an affect-laden sign circulating in global elite

economy that provides) are increasingly unspoken or suppressed, these micro-

8. They are facilitating economic transactions, managing day-to-day resources,

Kiva’s Staging of “Peer-to-Peer”

distances), this kind of philanthropy is exceedingly theatrical and its “on-stage”