Microcredit under the Microscope

(Reflections around a Conference)

Alan Fricker

Email: frickera@actrix.gen.nz

Abstract

Despite the seemingly obvious benefits, at least to Western thinking, microcredit, it seems, only alleviates rather than eliminates poverty, even the much praised Grameen Bank scheme. Furthermore, through an interesting conjunction of conference papers, impoverished peoples appear to have an intrinsic aversion to microcredit, articulated through their actions rather than their words. This aversion would seem to extend to development generally and to Western education. Earlier at the same conference a futuring tool was ‘walked through’ as a conversation with the self in an attempt to explain material poverty amidst plenty within Aotearoa New Zealand. Money was implicated, for it has become the thing of value itself.

Introduction

To the Western world credit, if you can get it, is great. That we may not be able to service it - well, mañana! Despite becoming ever more indebted we still believe in credit. Many though are only a paycheck away from oblivion. And yet, over the last 100 years or so, credit has enabled major public and private works, the widespread benefits of technological development, infrastructure reconstruction after warfare, and the accumulation of capital to further progress ‘progress’. The ability to repay the piper and the largesse to forego repayment arise from increasing economic activity, that is growth that converts natural capital into financial capital. So there are downsides. The indebted individual, unfortunately, does not have access to such largesse, except through bankruptcy, yet we are still prepared, perhaps reluctantly in many cases, to go further into debt.

Well, maybe we have gone overboard on credit somewhat. Perhaps we should have been satisfied with just having a mortgage on the house. Yet even the word mortgage, through its medieval origins, literally means ‘death pledge’, from the Latin mortuum vadium. In days of yore it was the most desperate move you could make having fallen on hard times. You pledged what you had - your possessions, your castle, even your life - not what you wanted to have.

What about microcredit then? Surely $100 or so to enable me to buy a sewing machine so I can make and sell clothes - a means to a livelihood - is okay? Again to the Western world, indisputable. And surely the developing world too, to help them pick themselves up by the bootstraps?

The Grameen Bank is held up as model example of a successful microenterprise strategy that began in 1979 to help alleviate poverty and promote economic development in Bangladesh (Higinbotham Holcombe 1995, Yunas 1999). By late 1995, the Bank and NGOs covered about 25% of target group households with over US$400 million in outstanding loans. The remarkable and rapid growth of this and similar schemes inspired the creation of many schemes in the developed world too, even the US. As a consequence of the 1997 Microcredit Summit in Washington over $1 billion has been allocated to community development projects, including microenterprise loans.

A study of these projects concluded that microenterprise programs are not the answer to the poverty problem (Servon 1999). Although the strategy responds to the growing interest in self-employment, would be entrepreneurs in the US need economic literacy to deal with the complex regulatory environment surrounding business ownership. Further, they need more capital and more advanced training than their counterparts in the developing world. There are some success stories, but they are the exceptions. Most enterprises stay small and struggle for a long time before making a profit. However they do provide critical income that can boost household incomes above the poverty line.

Wood and Sharif (1997) too raise questions about the limitations of micro-finance, even of the Grameen Bank. There are still serious problems in reaching hard-core poor and in ending poverty (in contrast to alleviation). Constraining factors include an over-emphasis on credit, a lack of investment opportunities, absence of market demand, and the disadvantaged position of women. While micro-finance can help, significant poverty removal depends on economic and social changes well beyond the reach of financial mediation.

An interesting conjunction of four presentations at a recent conference on poverty, prosperity and progress (DEVNET 2000) seemed to confirm some of the assumptions and contradictions that we, in the developed world, hold about development. It began in the session on microcredit.

Poverty, Prosperity, Progress Conference  (the conference papers)

The title itself of this conference is replete with paradox, if not contradiction - no doubt deliberately. But then life itself is paradox. Life, humanity and the biosphere even appear to defy one of the most fundamental laws of science. Life is not the most probable, in fact a most unlikely, outcome of our planetary evolution. No wonder then that all human endeavour has paradox. Our enduring task therefore is to find meaning within paradox.

The first presentation was about the many schemes South African banks have conceived and tried to implement for advancing credit to the disadvantaged majority, most of whom are unemployed blacks living in poverty. There is some demand for conventional deposit and withdrawal banking services, but small loans at even zero interest are not taken up. The banks believe they have failed, for to them and to us in the West credit is seen as opportunity. They are at loss to explain their perceived failure (Andre Schoombee).

An insightful contrast of the uptake of microcredit by the rice economies of Asia and the root-crop economies of the Pacific Island nations followed (Robyn Cornford). Rice is a seasonal crop in the Asian countries, and although it can be stored, the distribution of the surplus is in the hands of a small minority. The majority therefore have an off-seasonal need to engage in a range of other market-oriented activities. Microcredit can be useful. On the other hand, in the Pacific Islands only some root-crops are seasonal and some cannot be stored. Households generally manage to produce enough food to survive and have no need to engage in market-oriented activities. Surplus root-crops are used for prestigious, cultural and political purposes rather than for economic gain. Not surprisingly perhaps, the uptake of microcredit in root-crop economies is considerably less than in rice economies.

And then, as if in confirmation, we had an account (Jane Horan) of how Tongan women took advantage of, but did not need, microcredit to make, but not to trade, textile koloa - the fine mats and tapa cloth which is the indigenous basis of wealth in Tonga. They retained this wealth, in which prosperity, and social, cultural and even spiritual values are embodied. Just what the reactions were of those who advanced the credit was not stated.

Unspoken in these presentations were the perceived physical limits of the worlds of the peoples in these countries and their need to live sustainably within their ecological capacities. This would be more obvious, but not more pertinent, to Pacific Island communities. Microcredit is the forerunner of macro-credit, of much larger-scale economic activity and growth. Growth which may not be sustainable within their small and vulnerable island communities. Perhaps the fate of Easter Island lies heavily and intuitively within them. Non biodegradable waste and environmental degradation have been unintended and undesirable outcomes of extensive economic activity on the West’s much larger land masses. Small islands cannot absorb these impacts without detriment. And the world too is an island, in a sea of space.

This is not to deny the benefits that a money system brings, even macrocredit. No doubt these peoples have had their quality of life enhanced through public works funded by these means, eg. water, sanitation, health. Nevertheless it would be interesting to know just how much private and individual benefit, as distinct from public benefit, has been derived from microcredit.

And finally, in the plenary session that followed, Hilda Lini, former social activist and Minister of several portfolios in Vanuatu, spoke of reclaiming their children’s education, by re-instituting their traditional methods of conveying knowledge and values. To many in the audience a retrograde step - back to the future. I wonder? Could it be that these Pacific peoples, and others who reject microcredit, have a deeper intuitive understanding? Perhaps they had evolved, before the arrival of European influence, to the most ecologically sustainable state, and the most biologically efficient state, given the physical and biological constraints geography and biology have imposed on them? Money as a means of exchange, yes. But microcredit!?

Analysing Poverty

Poverty is multi-dimensional and relative. And can poverty within prosperity be progress? Is poverty inevitable? And why, in bounteous Aotearoa New Zealand, is there material poverty? Is it only because there is spiritual poverty? Or could there be dysfunction within our systems of social and cultural organisation?

We create the future by our actions in the present. Our actions though are largely prescribed by our systems of organisation. So who is creating the future? And are we complicit or innocent by-standers? Is it a just future, our preferred future, and is it sustainable? Causal Layered Analysis (CLA, Inayatullah 1998) is a futures research tool that enables the creation of transformative spaces in which we can envisage alternative and preferred futures.

CLA takes as its starting point the assumption that there are different perceptions of reality and ways of knowing. It focuses on the deeper dimensions, forcing us to question the assumptions, and thus exposing the contradictions and prejudices, in our own worldview and the societal worldview. Thereby we can see dysfunction within our systems of societal organisation, and come to recognise that the worldview that creates a problem can frame it in such a way so as to prescribe the solution, which may be no solution at all. CLA is a process of deconstruction, historical examination, detachment, envisaging alternative pasts and futures, and of the reordering of knowledge. But it is not a linear process. It is reflective, for it continually refluxes through the layers. CLA enables the creation of transformative spaces in which we can envisage alternative and preferred futures. The process requires time and space for the participants, preferably with a diversity of backgrounds and perspectives, to feel secure as they delve deeply into themselves, their experiences and to articulate them.

Earlier on that same day at the conference and by way of illustration, the CLA process was walked through as a conversation with the self using poverty as a case study (DEVNET 2000, Alan Fricker). It had none of the richness of a group process. For simplicity it was confined to material poverty in NZ and was selective as to which issues are progressed to the deeper layers.

This conversation with the self essentially identified money as the root cause of poverty. Money has become the ‘thing of value’ itself and has lost its original purpose of merely being the medium for the exchange of goods and services. The other components, redistribution and reciprocity, of Polanyi’s classic triad of social integration are either demeaned or ignored. We have begun to assign supernatural qualities to money, not surprisingly perhaps in that we are not wholly rational creatures committed to scientism and have rejected religion. We need a belief system. Money fills that gap for it is an abstraction, one we can believe in if it answers our prayers. All our value systems have become circumscribed by if not embodied in money. We have come to believe in our own magic; it has become our cargo cult.

The cargo cult was a creation of Papua New Guineans when they first encountered the vast array of material objects that disgorged themselves from ships and planes. Tim Flannery, of Future Eaters fame, describes how many remote PNG highlanders, having come to terms with cargo, now ascribe magical powers to money (Flannery 1999). Money is as much removed from their traditional values as it has become central to ours. Is their magical belief any less incongruous than ours?

Perhaps too we need to revisit some of our deeply held beliefs. Have biblical references conditioned us to the view that the poor will always be with us? Need they? - in these days of technological wonder. There is a need for the modestly rich, but do we need to have poverty? The bible advocates the jubilee year, every 50 years not every millennium.

The self in this conversation suggested supplementary local currencies as one possible solution to material poverty in Aotearoa New Zealand. These currency systems are based primarily on exchange. A small range of credit around a zero trade balance may be permitted but it is interest free, as in LETSystems. In effect, this conversation was a rational analysis of a vast range of information and experience but came to the same conclusion that poor, so-called simple, indigenous peoples of South Africa, Asia and the Pacific Islands may have come to intuitively.

References

DEVNET 2000: Poverty, prosperity, progress conference, 2nd biennial Aotearoa New Zealand International Development Studies Network (DEVNET), Wellington, Nov www.devnet.org.nz/conf/index/html

Flannery, Tim 1999: Throwim Way Leg, London: Phoenix, p 136

Higinbotham Holcombe, Susan 1995: Managing to Empower: the Grameen Bank’s Experience of Poverty Alleviation, London: Zed Books

Inayatullah, Sohail 1998: Causal layered analysis - poststructuralism as method, Futures, 30(8), 815-30.

Servon, Lisa J 1999: Bootstrap Capital: Microenterprises and the American Poor, Washington: Brookings Institution.

Wood, Geoffrey and Sharif, Iffath (eds) 1997: Who Needs Credit? Poverty and Finance in Bangladesh, London: Zed Books.

Yunas, Muhammad 1999: The Grameen Bank, Scientific American, Nov, 114-9

Biographical details

Alan Fricker has a scientific and engineering background in industry, academia and research in several parts of the world. He has moved from mineral production, waste minimisation, cleaner production, and industrial ecology. He is now an independent writer and researcher, and convenes the Sustainable Futures Trust. It is a network of people concerned with the root causes of our unsustainability - our attitudes, behaviours and dysfunction within our systems of organisation - rather than with the symptoms - environmental degradation and social injustice. The Trust organises meetings, seminars and courses around futures thinking, particularly the processes within the emerging discipline of Futures Studies. Alan publishes in the international futures literature. He can be contacted at Sustainable Futures Trust, 30 Akatea Rd, Lower Hutt, New Zealand; tel: ++64 4 589 1575; email: frickera@actrix.gen.nz