Many apologists reformers of capitalism have made absurd claims about that the benefits of micro-fincance and how it unleashes the small entrepeneurs and maintain the myth of heroic individual entrepreneurs. Ha Joon Chang makes the point about how many MORE “entrepreneurs” are in poor countries than in rich ones. Many people believe that the lack of entrepreneurship is one of the main causes of poverty in developing countries. However, anyone who is from or has lived for a period in a developing country will know that developing countries are teeming with entrepreneurs. On the streets of poor countries, you will meet men, women, and children of all ages selling everything you can think of.
A U.K. government-funded study of virtually all previous impact evaluations of microcredit dramatically showed there is no empirical evidence anywhere to show that microcredit has had a positive impact on poverty. Even long-standing supporters of microcredit now accept this extremely unpalatable fact.
One of the major assumptions about microfinance is that it is ideology free and simply about ‘helping the poor’. There is a view that the engine of development for poor countries should be the so-called ‘informal sector’, fuelled by microcredit. The recipe sounds perfect. Microcredit allows the poor to get out of poverty through their own efforts, by providing them with the financial means to realise their entrepreneurial potential. In the process they gain independence and self-respect, as they are not relying on hand-outs from the government and foreign aid agencies for their survival any more. Women are particularly ‘empowered’ by microcredit, as it gives them the ability to earn an income and thus improve their bargaining positions vis-à-vis their male partners. Not having to subsidise the poor, the government feels less pressure on its budget. The wealth created in the process, naturally, makes the overall economy, and not just the informal sector entrepreneurs, richer.
However as David Harvey and many others have shown, microfinance is actually almost perfectly in tune with the core doctrines of neoliberalism. Independent research has shown clearly that it does not work. There may be some short term benefits for a small group of people but ultimately microfinance dis-empowers the poor by deliberately restricting their ability to use their collective capabilities to effect real change. It is another attempt to distract people by perpetuating a model which ignores the real root causes of poverty and injustice and expects the poor to pull themselves up by their own bootstraps. Microfinance will give a few of them a pair of new boots but that is all!
This article reveals that the micro-credit has proved to be one of the most destructive interventions brought to Latin America over the last 30 years. Microcredit has effectively become the developing world’s very own version of the USA ’s sub-prime lending crisis.
In Bolivia, the commercialization of microcredit has been a major development disaster for the poor. First, Bolivia’s scarce financial resources were disastrously shifted into the “wrong” enterprises. Secondly, the elite group of individuals involved in running Bolivia’s main microcredit institutions have all become very rich indeed. High salaries, bonuses and dividends have been important to those most closely associated with the management and ownership of BancoSol. PRODEM was an institution that has its origins as an NGO funded by the international community to “help the local community,” eventually made millions of dollars after they gradually took control of PRODEM and then brazenly sold it off to a Venezuelan bank.
In Mexico, Banco Compartamos, an organization founded in 1990 as an NGO and making extensive use of international donor grant funding. Even with laudable goals written into its founding articles, very early on it became clear that the main intended beneficiaries of Compartamos’s operations were going to be its senior staff. After 2000 the senior staff began to reward themselves with Wall Street-style salaries, bonus packages and cheap internal loans which allowed them to buy shares in Compartamos. Then in 2007, when Compartamos underwent the inevitable IPO, key senior staff really hit the big-time, with a number of them pocketing several tens of millions of dollars when they off-loaded their shares into the market. A number of external investors also made vast fortunes from their shareholdings in Compartamos, notably the Boston-based microcredit advocacy and investor body ACCIÓN, which saw an initial $1 million stake in Compartamos (of which $800,000 was actually a grant to ACCIÓN) rise in value to nearly $270 million. Note also that Compartamos generates the revenues to support such high financial rewards to senior staff by charging as much as 195 percent real interest rates on its microloans to mainly poor Mexican women. Compartamos has been the world’s most profitable microcredit institution for five of the past six years, and its nearly $100 million dividend payout to investors is now larger than the balance sheets of most other microcredit institutions. With such huge financial rewards made possible by lending to Mexico’s poor, the big profit-hungry international banks, such as Citigroup, have entered the market, clearly adding to the lending frenzy underway.
An evaluation of Compartamos , financed by Compartamos itself and centrally involving one of the most high-profile microcredit supporters, professor Dean Karlan, who is based at Yale University in the U.S. found that in spite of Comapartamos’s huge presence in poor communities across Mexico, and its previous claims to be greatly helping Mexico’s poor, the impact evaluation team could only come up with a tiny amount of evidence of any positive impact arising from its activities. This conclusion actually hides a much more disturbing fact, which is that the research team could only manage to arrive at this sliver of good news by effectively refusing to adopt/adapt an evaluation methodology that would capture the most important downsides to the microcredit model. In order to ensure that they could come up with the required (very limited) positive impact result they later disingenuously claimed to have found, and which allowed Compartamos and other institutions involved to inevitably spin into the specious claim that Compartamos “generally benefits (its) borrowers”.”
The research team entirely overlooked so-called “displacement” effects – that is, the negative impact on incumbent microenterprises in the same community that lost business and income thanks to waves of new Compartamos-supported microenterprises. With most Mexican communities for a long time adequately served by simple informal microenterprises providing retail and other services to the poor, the arrival of rafts of new microenterprises operating in exactly the same sub-sector will inevitably have precipitated very large displacement effects. But these downside impacts were ignored. The team also failed to factor in the impact of exits, which is when a microenterprise fails - which the vast majority actually do, and usually very quickly - and the hapless individuals involved then have to either divert other funds (pensions, remittances, savings, etc.) to continue to repay their microloan, or else they lose assets lodged as collateral when they are forced into outright default. Another downside impact ignored by the research team relates to the fact that they also chose to examine a very short and unrepresentative time period – introducing microcredit into a community where before there was none. This then allowed them to simply aggregate the short-term results in such virgin territory into a generally upbeat assessment of the longer-term impact.
The politics and ideology was to ensure that individual entrepreneurship and self-help remain the only potential paths out of poverty for the poor in Latin America, and not the exercise of any form of “collective capabilities” through social movements, trade unions or any other similarly “subversive” intervention that the poor might wish to collectively deploy to escape their povert. Second, there is the issue of the massive wealth that a tiny financial elite has been able to generate for itself thanks to (over)lending to the poor, and which it is now, quite predictably, unwilling to forego. This wealth has allowed, among other things, for the microcredit industry to aggressively lobby governments, mount massive PR campaigns and effortlessly finance deliberately dodgy impact evaluations, all in order to persuade the key actors in Latin America to continue to support the micro-credit model.
From Here
A U.K. government-funded study of virtually all previous impact evaluations of microcredit dramatically showed there is no empirical evidence anywhere to show that microcredit has had a positive impact on poverty. Even long-standing supporters of microcredit now accept this extremely unpalatable fact.
One of the major assumptions about microfinance is that it is ideology free and simply about ‘helping the poor’. There is a view that the engine of development for poor countries should be the so-called ‘informal sector’, fuelled by microcredit. The recipe sounds perfect. Microcredit allows the poor to get out of poverty through their own efforts, by providing them with the financial means to realise their entrepreneurial potential. In the process they gain independence and self-respect, as they are not relying on hand-outs from the government and foreign aid agencies for their survival any more. Women are particularly ‘empowered’ by microcredit, as it gives them the ability to earn an income and thus improve their bargaining positions vis-à-vis their male partners. Not having to subsidise the poor, the government feels less pressure on its budget. The wealth created in the process, naturally, makes the overall economy, and not just the informal sector entrepreneurs, richer.
However as David Harvey and many others have shown, microfinance is actually almost perfectly in tune with the core doctrines of neoliberalism. Independent research has shown clearly that it does not work. There may be some short term benefits for a small group of people but ultimately microfinance dis-empowers the poor by deliberately restricting their ability to use their collective capabilities to effect real change. It is another attempt to distract people by perpetuating a model which ignores the real root causes of poverty and injustice and expects the poor to pull themselves up by their own bootstraps. Microfinance will give a few of them a pair of new boots but that is all!
This article reveals that the micro-credit has proved to be one of the most destructive interventions brought to Latin America over the last 30 years. Microcredit has effectively become the developing world’s very own version of the USA ’s sub-prime lending crisis.
In Bolivia, the commercialization of microcredit has been a major development disaster for the poor. First, Bolivia’s scarce financial resources were disastrously shifted into the “wrong” enterprises. Secondly, the elite group of individuals involved in running Bolivia’s main microcredit institutions have all become very rich indeed. High salaries, bonuses and dividends have been important to those most closely associated with the management and ownership of BancoSol. PRODEM was an institution that has its origins as an NGO funded by the international community to “help the local community,” eventually made millions of dollars after they gradually took control of PRODEM and then brazenly sold it off to a Venezuelan bank.
In Mexico, Banco Compartamos, an organization founded in 1990 as an NGO and making extensive use of international donor grant funding. Even with laudable goals written into its founding articles, very early on it became clear that the main intended beneficiaries of Compartamos’s operations were going to be its senior staff. After 2000 the senior staff began to reward themselves with Wall Street-style salaries, bonus packages and cheap internal loans which allowed them to buy shares in Compartamos. Then in 2007, when Compartamos underwent the inevitable IPO, key senior staff really hit the big-time, with a number of them pocketing several tens of millions of dollars when they off-loaded their shares into the market. A number of external investors also made vast fortunes from their shareholdings in Compartamos, notably the Boston-based microcredit advocacy and investor body ACCIÓN, which saw an initial $1 million stake in Compartamos (of which $800,000 was actually a grant to ACCIÓN) rise in value to nearly $270 million. Note also that Compartamos generates the revenues to support such high financial rewards to senior staff by charging as much as 195 percent real interest rates on its microloans to mainly poor Mexican women. Compartamos has been the world’s most profitable microcredit institution for five of the past six years, and its nearly $100 million dividend payout to investors is now larger than the balance sheets of most other microcredit institutions. With such huge financial rewards made possible by lending to Mexico’s poor, the big profit-hungry international banks, such as Citigroup, have entered the market, clearly adding to the lending frenzy underway.
An evaluation of Compartamos , financed by Compartamos itself and centrally involving one of the most high-profile microcredit supporters, professor Dean Karlan, who is based at Yale University in the U.S. found that in spite of Comapartamos’s huge presence in poor communities across Mexico, and its previous claims to be greatly helping Mexico’s poor, the impact evaluation team could only come up with a tiny amount of evidence of any positive impact arising from its activities. This conclusion actually hides a much more disturbing fact, which is that the research team could only manage to arrive at this sliver of good news by effectively refusing to adopt/adapt an evaluation methodology that would capture the most important downsides to the microcredit model. In order to ensure that they could come up with the required (very limited) positive impact result they later disingenuously claimed to have found, and which allowed Compartamos and other institutions involved to inevitably spin into the specious claim that Compartamos “generally benefits (its) borrowers”.”
The research team entirely overlooked so-called “displacement” effects – that is, the negative impact on incumbent microenterprises in the same community that lost business and income thanks to waves of new Compartamos-supported microenterprises. With most Mexican communities for a long time adequately served by simple informal microenterprises providing retail and other services to the poor, the arrival of rafts of new microenterprises operating in exactly the same sub-sector will inevitably have precipitated very large displacement effects. But these downside impacts were ignored. The team also failed to factor in the impact of exits, which is when a microenterprise fails - which the vast majority actually do, and usually very quickly - and the hapless individuals involved then have to either divert other funds (pensions, remittances, savings, etc.) to continue to repay their microloan, or else they lose assets lodged as collateral when they are forced into outright default. Another downside impact ignored by the research team relates to the fact that they also chose to examine a very short and unrepresentative time period – introducing microcredit into a community where before there was none. This then allowed them to simply aggregate the short-term results in such virgin territory into a generally upbeat assessment of the longer-term impact.
The politics and ideology was to ensure that individual entrepreneurship and self-help remain the only potential paths out of poverty for the poor in Latin America, and not the exercise of any form of “collective capabilities” through social movements, trade unions or any other similarly “subversive” intervention that the poor might wish to collectively deploy to escape their povert. Second, there is the issue of the massive wealth that a tiny financial elite has been able to generate for itself thanks to (over)lending to the poor, and which it is now, quite predictably, unwilling to forego. This wealth has allowed, among other things, for the microcredit industry to aggressively lobby governments, mount massive PR campaigns and effortlessly finance deliberately dodgy impact evaluations, all in order to persuade the key actors in Latin America to continue to support the micro-credit model.
From Here
No comments:
Post a Comment