Microfinance promised an innovative alternative to development but became a tool of neoliberalism. Discuss. Word Count: 2,500
Microfinance, the provision of small loans to very poor people for self-employment projects that generate income, allowing them to care for themselves and their families (Dalgic, 2007), has been widely advocated in the international development community as a powerful tool to reduce poverty and improve social inclusion (Jones and Dallimore, 2006). However, taking the formation of Muhammed Yunus’ Grameen Bank in 1976 as a starting point, the transition of microfinance from a ‘poverty approach’ to a ‘financial systems approach’ has led critics to posit microfinance as a tool for the advancement of the neoliberal doctrine of market fundamentalism. Exploring the temporal development of microfinance, in discourse, practice and outcome, this essay will seek to argue that the weakness of microfinance is by definition its role as a micro-level policy. In demonstrating how, in 1976, microfinance provided an innovative model and approach, this essay will argue microfinance remains firmly circumscribed within the wider macroeconomic policy agenda, whether that be Keynesian or Neoliberal economics. In doing so, neoliberalism can be seen as a tool for the advancement of the microfinance as much as microfinance is a tool for the advancement of neoliberalism. Furthermore, this essay seeks to critically analyse the assumption that as a tool of neoliberalism, microfinance can no longer fulfil its role as a development tool. Combining contemporary empirical studies from across the developing world with classical political economy critiques of capitalist production, this essay concludes that microfinance is the latest stage of micro-level policy within a macroeconomic framework of ‘hegemonic neoliberalism’ (Harvey, 2005), thus ensuring that only one form of development is guaranteed; that of markets. A trend that is expected to continue in Development’s next ‘alternative approach’: the ‘Good Governance’ agenda. At its inception in 1976, microfinance presented an innovative movement in development thinking, reconceptualising the poor as agents of their own development rather than passive recipients of Western Development. The ‘poverty approach’ to microfinance installed by the Grameen Bank, challenged the contemporary international development community’s approach to poverty, which combined an overzealous focus on human capital and sweeping generalisations that labelled heterogeneous groups of people as ‘poor’ (Yunus, 1998). Challenging the economistic focus of development institutions and conservative formal banking systems, the premise of the Grameen Model was that the ‘poor’ are inherently entrepreneurial and ‘always pay back’ (Dowla & Barua, 2006), drawing on the concept of social over human-capital. Thus, while the extension of credit markets has historical precedents in the development of the Western world (Ferguson, 2007), Yunus’s key innovation was to create loan circles in which members used social suasion to ensure high repayment rates and sustain the group’s creditworthiness (Adams and Raymond, 2008). Additionally, complementary mechanisms include innovative features like weekly repayment schedules, incremental loan sizes, and a focus on female clients (Armendariz de Aghion & Morduch, 1998; Rutherford, 1998). Such innovation transformed the imagination of sites of poverty. No longer were ‘the bottom billion’ short of capital (Collier, 2007), rather, microfinance posited a key strategy to lift the underdeveloped out of poverty; making possible the re-envisioning of places such as Africa, as ‘place-in-the-world’ (Ferguson, 2006:6), a frontier of investment (Robinson, 2001). Consequently, since 1976, $4.74 million has been lent to 4.35 million borrowers, 96 percent of whom are women (Dalgic, 2007), maintaining high repayment rates (Bateman & Chang, 2012). Leveraging economic and social...
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