Global Politics of Microfinancing Poverty in Asia: The Case of Bangladesh Unpacked

Abstract

This article offers a critical and systematic political analysis of microfinance schemes linking international, national and local development policy. It substantiates the argument that microfinance schemes are a neoliberal development strategy, primarily advanced to realise a dual purpose: (1) financial sector liberalisation and commercialisation, while extending microfinance as a means to “poverty reduction”, and (2) the dampening and undermining of resistance to neoliberal development policies, by relying on the disciplinary potential of these schemes. I illustrate this argument through an examination of the politics of microfinance and development in Bangladesh, which includes analyses of policies prescribed by the World Bank (and also the CGAP). The analysis also draws out the implications (legal and institutional) for many NGOs who have been required to change their status to Microfinance Institutions (MFIs). Microfinance schemes are exemplary of (new) efforts to build markets in Asia in accordance with neoliberal visions of development, and in ways that advance and capitalise on the contradictions of neoliberal development. But they also challenge us to reflect more deeply on the limits of “market society”.

Keywords:

• microfinance
• Bangladesh
• World Bank
• microcredit
• CGAP
• poverty
• market society
• development
• neoliberal politics
• inequality

Acknowledgments

I am thankful to two anonymous referees for useful comments and feedback on a previous draft of this paper. I would especially like to thank one of the referees for thoughtful suggestions generally, and also for the point about the need to strengthen the set-up of this paper by making more explicit the reasons for the focus on Bangladesh. I am also thankful to Martin Weber for comments on various drafts. Sharinee Lalit Jagtiani provided really helpful editorial support for which I am very grateful. A previous draft of this paper was originally presented at a workshop on ‘Rethinking Markets in Asia’ at the National University of Singapore in 2011. I express my thanks to participants in this workshop. I wish to sincerely thank Darryl Jarvis and Toby Carroll for organising the workshop and for inviting me to participate. Last but not least, I wish to thank the editors of ASR, and particularly Michael Barr for his close reading of the final draft of the piece.

Notes

1. This resonates with the early critical analysis of neoliberal politics advanced by Peck and Tickell (2002), which made the case for a “process based analysis of neoliberalisation”, as well as their analysis of “roll-out” neoliberalism. See especially pp. 383–92.

2. These have been examined in detail elsewhere (cf. Weber, 2004; 2002).

3. This political agenda coincided with the World Bank’s shift to target women for development, including with microfinance schemes (cf. Rankin, 2001).

4. For accounts of the politics of microfinance in such contexts see Elyachar (2002), Rankin (2001), Lazar (2004), Meideros (2001), Goldstein (2005) and Didem (2009). Bateman (2010) also offers an interesting critical analysis of microfinance as a neoliberal strategy. Taylor (2012) links microfinance schemes to the crisis of poor farmers in Andhra Pradesh.

5. For a detailed examination of this see Weber (2004).

6. I am drawing on McMichael (2012), who has argued that “Development is not just a goal; it is a method of rule” (p. 50).

7. For example, “under a 1993 banking law, Bolivia has begun licensing a new class of [financial] intermediaries: Private Financial Funds (PFFs). PFFs were designed to provide financial services to micro- and small enterprises, as well as loans to individuals for purchases of durable goods… Unlike conventional banks, PFFs are permitted to accept non-traditional collateral such as jewellery or furniture” (CGAP, 1994, p. 3).

8. I am borrowing from McGregor’s (1989) excellent early critique of credit and finance in development. He uses the term “patron-state” to understand credit relations in Bangladesh not in a “judgemental sense” (p. 479) but because of the significance of “patron-client” relations through which credit filters (p. 481).

9. This report (p. 8) refers to an April 1993 Aid Group Meeting and states that “the understanding for FY94 is that the GOB would accelerate privatisation of SOEs”. This report also states categorically that “the GOB needs to issue a Privatisation Policy statement which clarifies its privatisation objectives and expresses its clear commitment to the program… The announcement must be accompanied by a public education program on the benefits of privatisation” (p. 25). It also states that “a public relations program is required to build a broad-based support for the program” (p. 26).

10. For the sake of brevity, I omit points b), d) and e) here.

11. For this overall policy objective, see also World Bank (1996a, esp. pp. 43–47).

12. McGregor (1991) provides a good critique of the “narrow” notions of credit impact, and reinforces the need to get away from what he terms “mickey-mouse” studies of “impact”. See esp. p. 3, p. 23 and p. 43.

13. For a detailed list of CGAP’s external “consultants”, which include Citicorp Foundation and the Bankers Trust Company, see CGAP (1998c, p. 17).

14. For more on the way in which the CGAP has categorised its PIs, see CGAP (1995a).

15. CGAP, 1995a: See Annex 1, paragraph 1, on Eligibility Criteria of the Participating Institutions (PIs).

16. CGAP, 1995a: Annex 1, paragraph 2, on Eligibility Criteria of the Participating Institutions (PIs).

17. CGAP, 1995a: Annex 1 on Eligibility Criteria of the Participating Institutions (PIs), although paragraph 8 of this document does not exclude the possibility of the CGAP providing loans.

18. CGAP, 1995a: See Annex 1 on Eligibility Criteria of the Participating Institutions (PIs). See paragraph 27 on Use of Funds.

19. CGAP, Newsletter, No. 3, p. 8. The “UEMOA is the Economic and Monetary Union of the following seven West African nations: Benin, Burkina Fasa, Cote d’Ivoire, Mali, Niger, Senegal, and Togo” (1999, p. 22).

20. In terms of the stated eligibility criteria for potential FIs, the Bank requires assurance that FIs acting as on-lenders in FIL and other investment operations are viable institutions, with, among other criteria “adequate managerial autonomy and commercially oriented governance” (see paragraph 9), which is particularly relevant when state-owned or state-controlled FIs are involved.

21. CGAP (1998d). See note 1 on poverty measurement and note 2 on “operational self-sufficiency”.

22. I am drawing on McMichael’s argument that “Development is not just a goal; it is a method of rule” (2012, p. 50).

23. This White Paper is part of the G20 initiative of the Financial Inclusion Action Plan (approved in 2010).

24. Chatterjee actually draws on the example of microfinance to argue that such anti-poverty programs “may be regarded as direct interventions to reverse the effects of primitive accumulation”. He also states that they are “not driven by the motive of further accumulation of capital but rather by that of providing the livelihood needs of the debtors – that is to say, by the motive of the reversal of the effects of primitive accumulation” (2008, p. 55). To the extent that part of the motivations for microcredit schemes is the substitution of credit for welfare (or decent work), this point could stand. But when situated in the context of in-depth political analysis it is much more problematic.

25. For an interesting account of how the vulnerabilities of “microfinance clients” are perceived from the perspectives of the advocates of microfinance, see CGAP (2011b, p. 4).

26. I have been working on articulating this point about method in the analysis of development, drawing especially on the work of Philip McMichael and Julian Saurin; see Weber (2007).

27. See, for example, McMichael (2005a; 2005b; 2008); see also Nandy (2002).