Small Loans, Big Problems: The False Promise of Microfinance
Small Loans, Big Problems: The False Promise of Microfinance
By Helena Norberg-Hodge / localfutures.org
Jul 1, 2015

Ever since Bill Clinton and the World Bank enthusiastically embraced the microfinance concept in the 1990s, we at Local Futures have been skeptical of its benefits, seeing it as part of a whole package of “market solutions” to our social and environmental crises that, in the long run, make things much worse. We have pointed out that these loans often target rural populations who were not previously in debt: they represent the long arm of capitalism reaching into remote rural areas, encouraging a shift away from dependence on the land and the local community, towards competition in a resource-depleting global economy.

It has not been easy to oppose micro-credit: many well-intentioned grassroots activists have bought into the idea that giving ‘Third World’ women a loan would eradicate poverty and reduce population. This thinking was promoted with missionary zeal, and spread rapidly across the world. In trying to counter it, we have often felt like heretics. (One of the most difficult moments was when I was asked to debate Muhammad Yunus, the founder of the Grameen Bank, at the height of his popularity, on BBC radio.)

For this reason we’re very happy to see this article by Jason Hickel, a professor of anthropology at the London School of Economics, in the UK Guardian: The microfinance delusion: who really wins? As Hickel says, “microfinance usually makes poverty worse”, because the vast majority of microfinance loans are used to fund the purchase of consumer goods that the borrowers simply can’t afford: “they end up taking out new loans to repay the old ones, wrapping themselves in layers of debt.” Even when used to finance a small business, the most likely outcome is that the new businesses fail, which leads to “vicious cycles of over-indebtedness that drive borrowers even further into poverty.” The only winners are the lenders, many of whom charge exorbitant interest rates. Hickel concludes that “microfinance has become a socially acceptable mechanism for extracting wealth and resources from poor people.”

We would argue that there are other winners in what Hickel calls “the microfinance game”. Corporate interests of all stripes have a vested interest in seeing millions of people drawn more deeply into the debt-based globalized money economy. Interestingly, at the bottom of the webpage where Hickel’s article appears there are links to articles sponsored by the credit card giant Visa, all of them urging more “financial inclusion” in the global South – in other words, bringing more people into the economic system that corporate interests like Visa dominate. “Helping the world’s one billion unbanked women” turns out to be about how “more than 200 million women lack access to a mobile phone, meaning they’re excluded from digital banking opportunities.” Another article argues that one of the greatest challenges facing policymakers involves “providing some 2.5 billion people with access to formal financial services.”

This is propaganda, pure and simple: it is part of a drumbeat coming from think-tanks and corporate-friendly pundits that have been very effective in convincing people – including well-meaning philanthropists and activists – that the solution to global poverty requires pulling ever more people into the global economic system. That system is failing the majority even in the “wealthy” countries, while spurring rampant consumerism and unsustainable resource use worldwide.

The solutions to our many crises – including poverty – will not come from a global marketplace rigged by de-regulatory trade treaties to favor the biggest multinational corporations. They depend on preventing further deregulation of global corporations, while shifting towards more localized economies in which people can have real control over their own lives.

 

Photo credit: “Plantation Worker,” Luxor, Egypt, by Ryan Stuchly

3.8 ·
1
Trending Today
Revolution and American Indians: “Marxism is as Alien to My Culture as Capitalism”
Russell Means117,379 views today ·
MP Says Government is Intentionally Making People Destitute to Prevent Organised Opposition
2 min12,992 views today ·
Welcome to Marinaleda: The Spanish Anti-Capitalist Town With Equal Wage Full Employment and $19 Housing
Jade Small10,313 views today ·
15 Powerful Quotes From the World's Most Humble President
Hyacinth Mascarenhas9,758 views today ·
Every Town Needs a Remakery
Jeremy Williams6,185 views today ·
Without Saying a Word This 6 Minute Clip From Samsara Will Make You Speechless
6 min6,166 views today ·
This Short Film Plays Out Like an Epic Movie That Will Shake Your Soul - But the Movie Is Real, and We are The Actors
6 min5,510 views today ·
Today I Rise: This Beautiful Short Film Is Like a Love Poem For Your Heart and Soul
4 min4,858 views today ·
Why You Can Change the World
5 min3,820 views today ·
Load More
New
Meet The Woman Rescuing Fruit and Feeding Her Community
2 min
Debating the British Empire's 'Legacy' Is Pointless - This Is Still an Imperial World
Ibtisam Ahmed
9 Times Video Games Were Great for Mental Health
Marijam Didzgalvyte and Jish Newham
What is Populism?
6 min
5 Things You Can Do To Help Immigrant and Muslim Neighbors
Lornet Turnbull
Why We Can and Should Abolish the Police and Prison Industrial Complex
2 min
Break the Chain - Fortnight of Action Against Fracking Supply Chain Begins
Andrew Butler
Republican Fight to Criminalize Protest Tactics
5 min
Trouble, Ep. 1 - Killing the Black Snake
30 min
Load More
What's Next
Principled Societies Project Part I: Local Financial System
7 min
We The Tiny House People (2012)
81 min
The Garden at the End of the World (trailer)
3 min
Like us on Facebook?
Small Loans, Big Problems: The False Promise of Microfinance