<incom> Bello, Microcredit, Macro problems

[Soenke Zehle]

MICROCREDIT, MACRO PROBLEMS
Walden Bello*

[Published on Sunday, October 15, 2006, by The Nation. This article can 
be found on the web at http://www.thenation.com/doc/20061030/bello]

The awarding of the Nobel Peace Prize to Muhammad Yunus, regarded as the 
father of microcredit, comes at a time when microcredit has become 
something like a religion to many of the powerful, rich and famous. 
Hillary Clinton regularly speaks about going to Bangladesh, Yunus's 
homeland, and being "inspired by the power of these loans to enable even 
the poorest of women to start businesses, lifting their families--and 
their communities--out of poverty."

Like the liberal Clinton, the neocon Paul Wolfowitz, now president of 
the World Bank, has also gotten religion, after a recent trip to the 
Indian state of Andhra Pradesh. With the fervor of the convert, he talks 
about the "transforming power" of microfinance: "I thought maybe this 
was just one successful project in one village, but then I went to the 
next village and it was the same story. That evening, I met with more 
than a hundred women leaders from self-help groups, and I realized this 
program was opening opportunities for poor women and their families in 
an entire state of 75 million people."

There is no doubt that Yunus, a Bangladeshi economist, came up with a 
winning idea that has transformed the lives of many millions of poor 
women, and perhaps for that alone, he deserves the Nobel Prize. But 
Yunus--at least the young Yunus, who did not have the support of global 
institutions when he started out--did not see his Grameen Bank as a 
panacea. Others, like the World Bank and the United Nations, elevated it 
to that status (and, some say, convinced Yunus it was a panacea), and 
microcredit is now presented as a relatively painless approach to 
development. Through its dynamics of collective responsibility for 
repayment by a group of women borrowers, microcredit has indeed allowed 
many poor women to roll back pervasive poverty. However, it is mainly 
the moderately poor rather than the very poor who benefit, and not very 
many can claim they have permanently left the instability of poverty. 
Likewise, not many would claim that the degree of self- sufficiency and 
the  ability to send children to school afforded by microcredit are 
indicators of their graduating to middle-class prosperity. As economic 
journalist  Gina Neff notes, "after 8 years of borrowing, 55% of Grameen 
households  still aren't able to meet their basic nutritional needs -- 
so many women are using their loans to buy food rather than invest in 
business."

Indeed, one of those who have thoroughly studied the phenomenon, Thomas 
Dichter, says that the idea that microfinance allows its recipients to 
graduate from poverty to entrepreneurship is inflated. He sketches out 
the dynamics of microcredit: "It emerges that the clients with the most 
experience got started using their own resources, and though they have 
not progressed very far--they cannot because the market is just too 
limited--they have enough turnover to keep buying and selling, and 
probably would have with or without the microcredit. For them the loans 
are often diverted to consumption since they can use the relatively 
large lump sum of the loan, a luxury they do not come by in their daily 
turnover." He concludes: "Definitely, microcredit has not done what the 
majority of microcredit enthusiasts claim it can do -- function as 
capital aimed at increasing the returns to a business activity."

And so the great microcredit paradox that, as Dichter puts it, "the 
poorest people can do little productive with the credit, and the ones 
who can do the most with it are those who don't really need microcredit, 
but larger amounts with different (often longer) credit terms."

In other words, microcredit is a great tool as a survival strategy, but 
  it is not the key to development, which involves not only massive 
capital-intensive, state-directed investments to build industries but 
also an assault on the structures of inequality such as concentrated 
land ownership that systematically deprive the poor of resources to 
escape poverty. Microcredit schemes end up coexisting with these 
entrenched structures, serving as a safety net for people excluded and 
marginalized by them, but not transforming them. No, Paul Wolfowitz, 
microcredit is not the key to ending poverty among the 75 million people 
in Andhra Pradesh.  Dream on.

Perhaps one of the reasons there is such enthusiasm for microcredit in 
establishment circles these days is that it is a market-based mechanism 
that has enjoyed some success where other market-based programs have 
crashed. Structural-adjustment programs promoting trade liberalization, 
deregulation and privatization have brought greater poverty and 
inequality to most parts of the developing world over the last quarter 
century, and have made economic stagnation a permanent condition. Many 
of the same institutions that pushed and are continuing to push these 
failed macro programs (sometimes under new labels like "Poverty 
Reduction Strategy Papers"), like the World Bank, are often the same 
institutions pushing microcredit programs. Viewed broadly, microcredit 
can be seen as the safety net for millions of people destabilized by the 
large-scale macro- failures engendered by structural adjustment.

There have been gains in poverty reduction in a few places--like China, 
where, contrary to the myth, state-directed macro policies, not 
microcredit, have been central to lifting an estimated 120 million 
Chinese from poverty.

So probably the best way we can honor Muhammad Yunus is to say, Yes, he 
deserves the Nobel Prize for helping so many women cope with poverty. 
His boosters discredit this great honor and engage in hyperbole when 
they claim he has invented a new compassionate form of capitalism -- 
social capitalism or "social entrepreneurship" -- that will be the magic 
bullet to end poverty and promote development.

* Walden Bello is professor of sociology and public administration at 
the University of the Philippines and executive director of Focus on the 
Global South.