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The following article appeared in Left Business Observer #74, October 1996. It retains its copyright and may not be reprinted or redistributed in any form - print, electronic, facsimile, anything - without the permission of LBO.

Microcredit, microresults

by Gina Neff

Gina Neff is an economic journalist in New York City. Her piece on foundations is on this site. So is her follow-up report on the microcredit summit.

"If we can come up with a system which allows everybody access to credit while ensuring excellent repayment - I can give you a guarantee that poverty will not last long," proclaims Muhammad Yunus, guru to market partisans seeking "new solutions" to poverty. As founder of the widely acclaimed Grameen Bank, the Bangladesh bank that lends to poor rural women, Yunus has found a rapt audience in international development circles with his approach to poverty - one that doesn't involve old-fashioned ideas of expensive government programs, tiresome training, or clunky infrastructure. Instead, Yunus, a Vanderbilt-educated economist, is calling on the goodness of "social-consciousness-driven entrepreneurs" and pushing "home-based production by the self-employed masses." This translates as moving the responsibility for antipoverty programs to poor people themselves, using borrowed money - and not only in the Third World, but here in the U.S. as well.

In the Grameen model, "landless women in Bangladesh, the poorest of the poor" are miraculously transformed into businesswomen - with enterprises so small they are tagged with the prefix "micro." Rather than job creation, education, or training, the Yunus solution focuses on jump-starting self-employment, providing the capital for poor women to use their innate "survival skills" to pull themselves out of poverty. Instead of collateral, these "microloans" are secured by the honor and credit lines of a peer group: If one woman defaults, no one in her lending circle will receive another loan. This model has sparked a movement to dismantle development initiatives and decentralize antipoverty programs with the ultimate privatization of welfare - shoeless women lifting themselves up by their bootstraps. According to the glowing press churned out of the Grameen's Dhaka headquarters, which has been recirculated uncritically in both the popular and professional press, it seems to be working. After all, what other bank lending solely to poor people can claim a 97% repayment rate, and a borrowing clientele that is 94% female?


Poverty alleviation?

But while the press and the global network of localists rave about the bank's lending to "landless" women, the miracle dissolves on closer inspection. For example, Grameen rules insist that its borrowers own their homes - not unlike the assumption that shoeless women have bootstraps. Evidently Bangladeshi homeless women don't count as the poorest of the poor. And unfortunately, Grameen borrowers are staying poor. 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. That's a figure that the press fails to mention. Ditto the World Bank, which in its 1995 study of Grameen, focused mainly on the bank's financial viability, determining if the program was breaking even or, better yet, turning a profit. It's not; unfortunately, only foreign grants are keeping it afloat.

Yunus himself lustily defends his vision of for-profit lending to the poor. In his words, capitalism doesn't have to be the "handmaiden of the rich"; even poor people can benefit from the system if they are only given the chance to use their innate business savvy. But even though part of his mission is to graduate lenders into commercial banking, and the World Bank sees lenders' graduation a sign of the program's viability, that's just not happening. According to the World Bank report, "The [Grameen] Bank may have a market niche because its borrowers are dependent on the program, but over the long run this relationship could render the Grameen Bank vulnerable. Unless borrowers' graduation from low-level incomes to higher levels (if not from the program entirely) is encouraged or achieved many members will become permanently dependent on Grameen Bank credit and services." The same study found that Grameen had no significant impact on women's wages in rural villages, although it did boost men's and children's wages. And with all the hype about Grameen's being the largest microlending program in the world, one could never guess that loans to women have remained a mere 5% of the total amount lent in the Bangladeshi countryside since the 1980s.


Gendered credit

Proponents of Grameen-style microlending argue that even despite their flaws these programs benefit and even "empower" women. But in a study recently published in World Development, Anne Marie Goetz and Rina Sen Gupta found that while women are getting the loans from Grameen Bank and similar organizations, a "significant portion" of those loans are directly invested by male relatives (although women bear the liability for repayment), and in only 37% of the cases had women retained full or significant control over the businesses that were in their names. In comparison, 22% of those they surveyed didn't know how their husbands, sons, fathers or brothers had used the loan and had not even been involved in "their" enterprises. At Grameen, daughters of women borrowers are not eligible for a loan because the bank has a policy against making two loans to a family, even though a borrower can take out additional loans for her son's business. So much for the "empowerment" of women.

Instead of empowering women, it looks more like Grameen is using them as collection agents. As a Bangladeshi government field worker explained to Goetz and Gupta: "We are much better at getting our loan money back now that we are using women as middle-men [sic]." Even the western development literature is guilty of painting women as the sole moral and financial guardians of the family. Grameen's high repayment rate is commonly explained by saying that men gamble the money away while women are more responsible, trustworthy, and concerned about the family. These explanations rarely note the pressure that poor, illiterate women must feel from Grameen's highly educated, primarily male staff, nor do they examine what leads men to behave so irresponsibly, if this is indeed the case. Under the banner of liberation, Grameen ironically reinforces women's traditional roles; while capitalizing household activities, women are kept out of waged work - which, whatever its limitations, can offer women some degree of independence. As Goetz and Gupta put it, using women as "conduits for credit for the family" keeps women as the "policers of recalcitrant men," dubious progress in gender relations.

Several outside studies of Grameen confirm that the control women have over their microloans decreases over time - just the opposite effect one would expect from programs meant to promote women as entrepreneurs. Grameen encourages women to borrow for livestock and agricultural purposes - in Bangladesh, traditional women's work. Grameen's social interventions have less to do with empowering women than with making them good repeat borrowers. At every meeting women rather cultishly recite the "16 decisions" that they must adhere to in order to be Grameen borrowers including, "We shall reduce our expenses to a minimum" and "If we learn that discipline is not respected . . . we go along to help and restore order."

Grameen might be better at generating media attention, but their services seem Spartan compared to those of the other microcredit programs in southeast Asia. Grameen, believing women are able to provide for themselves all other inputs necessary to be effective entrepreneurs, provides only credit. On the other hand, India's Self-Employed Women's Association, a union for poor women, offers credit as one of a range of services, along with political organizing, training, business skills, leadership skills, mediation, lobbying and project assistance. The Bangladesh Rural Action Committee provides education for the daughters of borrowers as well as health services. But the Grameen model of banking on the poor is strictly quantifiable - "repayment rates," "cost effectiveness" (i.e., how much it costs rich creditors and donors) and "viability." Without the cumbersome delivery of the other services that the poor need, Grameen gets to champion the free-market system and all its goodness.

Yunus has announced that Grameen is working with the government to replace the nationalized health care system with a sort of poor person's HMO on a "cost recovery" basis. Of course, in the experimental programs, Grameen borrowers were rewarded for borrowing money with lower premiums for health coverage. This fits with the World Bank's recommendation that Grameen develop new markets and products for poor people. If adopted by the Bangladeshi government, the Grameen-run HMOs would create a two-tiered health care system - with families in hock to Grameen getting cheaper care.

Grameen-style lending elsewhere in the Third World, promoted by the World Bank, isn't scoring any great successes. In Zimbabwe, Patrick Bond pointed out in an article in African Agenda, loans to peasants had a default rate of 80%. Bond quoted Ugandan economist Dani Nabudere as saying that the notion that the rural poor need credit to improve their lives "has to be repudiated for what it is - a big lie!" But the rhetorical appeal of self-help obfuscates the failures of group lending to do anything for the African poor.


Import model

Now U.S. disciples of Yunus are bringing the Grameen religion here. In February the first Microcredit Summit will be held in Washington, and everyone from Hillary Clinton (who has said of microcredit that it "translates to hope for women who dream of better lives. Its impact is gigantic.") to Republican Senator Robert Bennett wants to hop aboard the microbus. The can-do enthusiasm of targeting the poor meshes nicely with the shredding of the social safety net, so the applicability in the U.S. of the peer-lending model for small, informal businesses is never questioned. Microcredit fits in nicely with prevailing U.S. prejudices, since it relies on local, rather than national, programs and individual, rather than collective, approaches.

But the notion that microlending could seriously reduce poverty in the U.S. is ludicrous. Women's World Banking, a microcredit coalition based in New York, highlights the success of microlending in this country with stories of a newspaper journalist turned doll maker, a low-income mother of four who paints children's faces and murals, and a lower middle class woman who opens a gourmet coffee shop. While there is nothing wrong with what these women are doing, these activities are highly dependent upon consumer trends and personal income levels (will a cappuccino craze sweep South Central L.A.?) and would be severely hurt by a downturn in the economy.

Beyond the vulnerablity of these new businesses is the issue of how right they are - that is, is it right that programs are encouraging women and the poor to take these kinds of low-paying, albeit self-paid, jobs? Debra Franklin, President of Planned Financial Concepts and a microlender-to-be, gushed about one potential client's plan to buy cans from homeless people at half-price. Behind the chic rhetoric of flexibility and decentralization, there is an exploitative feel to many of these programs. Yunis's vision of moving mass production out from under one factory roof into home-based self-employment sounds frighteningly like a return to 19th-century-style piecework. And when there's no transformation of production, wordplay can do miraculous work; for example, maids with microloans suddenly become microentrepreneurs with their own "cleaning service."

In an article earlier this year in Inc. magazine, Timothy M. Bates and Lisa J. Servon slammed the microcredit movement for touting poverty relief as a viable goal. According to Bates and Servon, at Working Capital, a group that targets "low-income communities to rebuild local economies," only 16% of the borrowers had personal incomes below $15,000 and almost half earned $30,000 or more. As they put it, "running a small business in this country requires an education and a dependable support network as well" - something the inner-city poor don't have. Now the phrase "income patching" is coming into vogue with program officers, who see microenterprises providing working moms with an few thousand dollars a year, but nowhere near enough to get by. Where the main body of income will come from, especially in post-welfare America, is anybody's guess.

Kathryn Keeley, executive director of the Calvert Foundation, the nonprofit wing of the socially responsible banker, has called for illumination of the "myths of Grameen" and of the inappropriateness for U.S. inner cities of Grameen's illusory model. An experienced microlender, Keeley has called on the enthusiasts to reevaluate the damage that they are doing to traditional poverty programs and has approached the organizing group of the Microcredit Summit, RESULTS, an anti-hunger lobbying group, to amend their pro-Grameen agenda. Such internationally noted philanthropists as Citibank are financing the summit, with its goal of placing 100 million of the world's poorest families, particularly their women, in self-employment by 2005.

What the microrevolution has failed to address in its manifestos for credit to be considered a human right is that more people in the U.S. are having to work at more than one job to stay above the poverty line. Rather than working to increase wages, the microliberals are clamoring to cut job training for the poor because that's what has allegedly worked in Bangladesh. Turning peasant women into mini-capitalists is just furthering the reach of finance capital and shifting the burden of risk to a class who already bear the brunt of poverty without safety nets. And playing cheerleader to dead-end consumerism and self-exploitation strengthens the arguments of the slash-and-burn policy crowd as they cut public programs and replace them with the rhetoric of credit-fueled self-empowerment.

Since some individuals have been helped by microloans, their individual cases form a powerful body of rhetoric that plays into the myth of America itself - work hard and make it. Now the microlenders promise the destitute they can "borrow our money and be your own boss." Sounds like a late-night TV pitch for instant wealth through no-money-down real estate - and just about as believable.

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