Microcredit: good cause or neoliberal fairy tale?
Lois Danks
volume:  
volume 35
issue 2
April 2014
imagestuff

Women count out money for repayment of their microcredit loans at Dowtia village in Bangladesh. Emergency expenditures often require taking out a new loan — at an exorbitant rate — to pay off the previous one. Credit: Rafiqur Rahman / Reuters

In 1976, Bangladeshi economist Dr. Muhammad Yunus came up with the notion that poverty could be solved in developing countries with “microloans” — lending small amounts of money to poor people so they can start a business.

Yunus launched the non-profit Grameen Bank, which made microloans to groups of poor women — and declared poverty would be only a memory by 2030.

His ideas spread and he won a Nobel Prize in 2006. World Bank, U.S. Agency for International Development, and other “development agencies” began pushing the creation of for-profit microfinance agencies and banks. Neoliberal policy makers such as Republican Paul Wolfowitz loved its emphasis on market solutions to poverty. Democrat Hillary Clinton liked getting poor people in on “growing the financial system.”

Another bonus is that the scheme appeals to the person on the street who believes in “a hand up, not a handout” — and might donate to philanthropic efforts like those of George Soros, which push microcredit in places such as Africa.

Today, microfinance is a huge industry and over 7,000 for-profit banks and not-for-profit NGOs (non-governmental organizations), such as Unitus and ACCION, loan out billions of dollars a year.

Yet contrary to the hype, developing countries with widespread use of microloans have sunk deeper into poverty. And “microfinance,” expanding the financial services that are available to poor people, is also a dismal failure.

How it’s supposed to work. In 2000 Grameen Bank made loans of $700 to rural women in Bangladesh to become “Grameen phone ladies.” The women made income by renting time on cell phones to rural people. As they repaid their loans, more women could get loans to become phone ladies and soon the village would rise out of poverty and everyone would live happily ever after. Sounds great!

Donations have poured in over the internet from feminists and social welfare activists, who are led to believe these schemes empower poor women. New NGOs are popping up and older ones are expanding. Neoliberals are replacing U.S. foreign aid with microfinance — and pushing the myth that anyone can start a business and become a success.

How it really works. As more women in the village get loans and buy phones there are fewer customers for each Phone Lady. Markets become saturated and lack of transportation limits the ability to reach new markets. Then a large cell phone company moves in and sells cheaper phones to the villagers — a natural move under the laws of capitalism.

Grameen phone ladies are left with shrinking income but still have loans to repay. Meanwhile, others with cheaper phones are undercutting them and paying loans too. Poverty is just redistributed as financiers squeeze the poor with high interest rates.

Often, microloans trigger a downward spiral when money is spent on a family emergency, and a new loan is needed to pay the first one. Interest rates can reach 50, 60 or even 100 percent. Eventually deep in debt, the family must sell possessions, even homes and land, to repay loans to coercive enforcers.

Microloans feed false hope. The evidence that microloans don’t free people from poverty can be seen in the statistics of countries that have been saturated with these loans for decades. Bangladesh and India, for example, still have widespread crushing poverty. In spite of India’s rapidly growing economy and wealthy class, 79 percent of people live on less than $2 a day. This misery is worsened by austerity programs that are being pushed by the same ruling elites who are pushing microloans.

A study by the World Bank reported the failure rate of micro-businesses in Bosnia was 50 percent in the first year. In the Indian state of Tamil Nadu only one percent survived after three years, but loans still had to be repaid. The Grameen Bank’s very first client, Sufiya Begum, died in abject poverty in 1998 after all her business attempts over 30 years came to nothing.

Most projects that survive are started by women with skills and education who are above poverty level and already have small businesses — thus the loans benefit a few better-off folks, not those at the bottom.

In many cases, microfinance projects disrupt existing communal systems of villages, and especially hurt the very poorest, elders, and the disabled. Informal safety nets disappear as people compete against each other. Then, big business moves in and crushes the local sellers. This doesn’t end poverty, but does strengthen capitalism — an economic system that fuels profits by thoroughly exploiting the working class through its labor and consumption.

Despite microcredit’s deep failure, large U.S. banks — Wells Fargo, Bank of America, Citi, Chase, and others — have set up foundations to expand this scam into heavily indebted European countries like Greece. ACCION and Kiva (NGOs) have even partnered with VISA to bring microloans to the distressed city of Detroit, Mich., where most residents would rather have a job with benefits than self-employment.

A dream come true for capitalists. Microfinancing is a way for imperial powers to control the economies of poor countries, retard development, and help bankers tap into a steady source of profits.

The phenomenon is widespread in Latin America and Africa. Money is pumped into thousands of tiny businesses such as street vendors, but not into larger production enterprises that will develop technology, ease workers’ tasks or boost labor productivity. The microloan “entrepreneurs” are really indentured servants of the bank that gives them loans for piecework — with no wages or benefits.

The microfinance fad feeds the false hope that people can rise from poverty through self-help and market-based solutions. It is opposed to the idea of uplift through collective working class struggle.

And as laboring classes worldwide do fight for a better future, neoliberals would love nothing more than to see their radical aspirations for equality, wealth redistribution, and socialism disappear under a flood of microloans and promises that everyone can go from rags to riches and pull themselves up by the bootstraps.

An extra benefit of the microfinance scam is that new markets are created for capitalists, by grooming people to consume — buy a big item now with a loan, then pay it back “a dollar down and a dollar a week.”

Socialism is the real solution to poverty! As long as capitalism exists there can be no end to poverty. When billions of people are desperate for food, shelter, clean water and healthcare, the answer is not microloans but the overturn of an economic system that enables a tiny percentage of the world’s population to control all the wealth!

Socialism, where the economy is planned, and production is organized rationally under workers’ control for the common good, is the way to end poverty and create real quality of life for all.

Send feedback to Lois Danks at lfdanks@yahoo.com.


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