'Microfinance and the New International Division of Debt'

I attended a lecture at UH Geography Department by Stephen Young from the University of Washington. The purpose of the talk, in addition to breaking down micro-lending into its component parts and then looking at the larger implications of its outcomes, was to address the controversy brought on partly by a recent New York Times article, "Microlenders, Honored with Nobel Are Struggling", higlighting the negative outcomes of some micro-lending programs. (Here's another article which addresses many of these concerns: "Micro-credit: Remedy for Poverty or Opportunity for Abuse.")

Professor Young started off by showing that there are two contrasting images of microfinance: the first-world connected to third-model attributed to Kiva, and the reality showcased in the above articles that is becoming more and more prevalent. Based on his research of archives and conducting interviews in Seattle, Hyderabad, and coastal Andrha he arrived at the following conclusion: "In spite of the growth of online lending sites such as KIVA, microloans in India do not simply produce 'virtuous cycles' of prosperity and empowerment at the click of a mouse button. There is a need to focus on how microfinance markets are linked to wider political-economic geographies of: Interconnection, Disconnection, Reconnection, and Re-negotiation."

I. Interconnection: State-civil society initiatives to develop connections with transnational flows of capital and knowledge.

II. Disconnection: This is linked to ongoing forms of disconnection [from credit flows], dispossessions [of agricultural land], and disempowerment [in social reproduction] in many places.

III. Reconnection: Accelerating the rollout of microfinance programs is increasingly a means of reconnecting some populations. These efforts bring together another transnational networks of advisors, auditors and investors.

IV. Re-negotiation: These processes are being reworked in multiple ways 'on the ground' in Andrha Pradesh. This includes practices that have deepened, as well as resisted, the trend toward commercialization of microfinance.

Microfinance started as an opportunity for groups that had been marginalized. The 1990s saw a huge surge in MFIs— 10,000 in 1994 to 365,000 in 2001. These self-help groups (SHGs) got frustrated with state governments and the World Bank so they started registering themselves as non-banking financial companies in order to generate funds from private entities. From there the securitization of microfinance loans— essentially bundling them and selling them off— was seen as the most effective way of getting market capital to the poor and pulling them out of poverty.

Along the way, the microfinance industry had a significant social impact. For young men it lead to "changing masculinities" as they became more mobile and adept at handling technology through their jobs with these MFIs. This fostered "a sense of connection with a larger social and economic domain." In contrast, for women the lack of mobility was seen as a plus; there was a fear that clients would take the money and run, so the loans were only made to married women.

Finally, the commercialization of micro-loans led to widespread protest (as shown in the NY Times article) due to the unethical profit-driven practices that made MFIs look like their supposedly distant cousins in the first world that started the global financial crisis. In fact, as a result of these practices, not only were the traditional money lenders (who supposedly were usurious and unethical) not eradicated, but they saw their business actually increase because some borrowers were forced to go to them in order to make their payments to the MFIs. Sad irony, that.

I had a chance to ask Prof. Young if he thought micro-lending could work in a place like Hawaii. He first replied that he was not an expert on the situation in Hawaii, but generally speaking as long as micro-loans are used for their most effective purposes— building savings, access to credit to encourage entrepreneurship— and not for its less effective ends— compensation for loss of land or public benefits (i.e. not a rescue measure)— then they could work when combined with other social support systems. Micro-loans work best when diversification of income occurs, so it is essential to encourage the virtuous cycle rather than simply trying to pull people out of debt.

He didnt say they wouldn't work in Hawai'i, and that's good enough for me!