From Microfinance to Inclusive Financial Markets: The Challenge of Social Regulation

Abstract

Policy towards microfinance has undergone a shift away from building financial institutions focused on serving poor people to an “inclusive” agenda for financial sector development, operationalized by some donors in an approach entitled “Making Markets Work for the Poor”. This approach is located in New Institutional Economics and the enabling environment focus of the post-Washington Consensus. Despite the way in which this inclusion agenda echoes social exclusion discourse, it engages with a residualist rather than relational understanding of poverty. This leads to an analytical disjuncture between its discourse and analysis, overlooking the root causes of poverty and exclusion in relational processes. Arising from this is the failure to recognize that developing institutions and “enabling” environments require an understanding of social institutions and their influence as social regulatory structures. The author illustrates how analysis can proceed to address this disjuncture using the example of gender relations.

Notes

The author is grateful to James Copestake, Joe Devine, Cyril Fouillet, Ruth Goodwin-Groen, Barbara Harriss-White, Allister McGregor, Sarah White and two anonymous reviewers for comments on earlier versions of this paper. Errors and omissions remain her own.

¹ I put this in quotation marks as the recent financial crisis clearly highlights the need to question assumptions about what the sustainability of financial systems means, especially when based on profitability indicators.

² This study is the central study referred to in FFA, which was written by Beck.

³ While Africa is seen as a region of low-population densities and abundant land, this is clearly now changing with rapid population growth.

⁴ Violence and coercion have of course been part of processes in South Asia also, while land and labour arrangements are changing as population growth occurs in Africa, especially in more highly productive zones.

⁵ Criticism has also focused on the use of instrumental variables to attempt to disentangle the relationships between institutions and their outcomes (see e.g. Glaeser et al., 2004), but this does not affect the substance of the discussion here.

⁶ This is essentially an extension of the Harvard gender analysis tools into returns and income and adds a further analysis of expenditure responsibilities.

⁷ Indeed, Yaqub (1995) argued that increasing levels of default by women in Bangladesh were a sign of increasing empowerment!