Poverty Capital

Microfinance and the Making of Development

Ananya Roy

• Publisher: Routledge
• Year: 2010
• ISBN:
  9781136992490
• Edition: 1
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

Winner of the 2011 Paul Davidoff award!

This is a book about poverty but it does not study the poor and the powerless; instead it studies those who manage poverty. It sheds light on how powerful institutions control "capital, " or circuits of profit and investment, as well as "truth, " or authoritative knowledge about poverty. Such dominant practices are challenged by alternative paradigms of development, and the book details these as well. Using the case of microfinance, the book participates in a set of fierce debates about development – from the role of markets to the secrets of successful pro-poor institutions. Based on many years of research in Washington D.C., Bangladesh, and the Middle East, Poverty Capital also grows out of the author's undergraduate teaching to thousands of students on the subject of global poverty and inequality.

CHAPTER 1
Small Worlds

The Democratization of Capital and Development

Microfinance is one of the most important economic phenomena since the advent of capitalism and Adam Smith.

(Vinod Khosla, Silicon Valley venture capitalist, 2004¹)

An Encounter in a Grocery Store and in a Classroom

It was the end of a long day at work. I had just finished shopping for groceries at Whole Foods Market in Berkeley, my cart piled high with striped heirloom tomatoes, lush eggplants, and round Asian pears. Then I saw Felicita. She was smiling, a broad grin that was confident, and she bore in her hands a garment with vibrant embroidery. Felicita was the “microentrepreneur” featured that month at Whole Foods Market, her smiling face beaming at us from donation flyers (see Figure 1.1). As I paid for my groceries, I had the option of adding $1 or $5 to my bill for use by the Whole Planet Foundation to “empower the poor through microcredit.” But the flyer also told a story: of how Felicita, who lives in Guatemala, “runs an embroidery business and sells her products in the local marketplace.” Curious to learn more I came home and browsed the “photo-story” of Felicita on the Whole Planet Foundation website: “Before receiving a microloan, she lacked the capital to buy enough raw materials to make more than a few blouses a week. Now, she has doubled her monthly production, enabling her to buy school supplies for her children” (http://www.wholeplanetfoundation.org/partners/microentrepreneurs, accessed July 28, 2008).

Felicita is one of many microentrepreneurs supported by the Whole Planet Foundation and one of millions of women worldwide who today are recipients of microfinance loans given out by a proliferation of organizations. Microfinance, the provision of financial services to the poor, is a highly popular poverty alleviation tool, widely discussed and applied. This broader term, “finance” subsumes within it more specific practices such as the granting of credit in the form of tiny loans, or microcredit.

Figure 1.1 Felicita, microcredit client of Banrural Grameen Guatemala and Whole Planet Foundation (photograph courtesy of Alexander Crane).

Felicita is also an example of the “visible” poor, her struggles and successes rendered familiar through the methods of development and philanthropy that are now all around us, even in our grocery stores. This is a “small world”—or as the Whole Planet Foundation puts it, a “global community”—one where the alleviation of poverty is inserted into everyday acts of consumption. Our choices empower, and we are in turn empowered. It is through such forms of intimacy that we make and remake ourselves as world citizens.

Felicita is a microfinance client of Banrural Grameen Guatemala, a Whole Planet Foundation partner. This unusual configuration of institutions itself deserves a closer look. In 2007, the Whole Planet Foundation, Banrural, and the Grameen Trust entered into an agreement to establish a microfinance organization in Guatemala. Whole Planet Foundation is a private, non-profit organization established by Whole Foods Market and it seeks to address the “persistent problem of world hunger and poverty” (http://www.wholeplanetfoundation.org/about, accessed July 20, 2008). Banrural is Guatemala’s largest bank. The Grameen Trust is a special arm of the Grameen Bank of Bangladesh, charged with the mission of replicating the Grameen microfinance model around the world. Their partnership yielded Grameen Guatemala which provides loans to microentrepreneurs such as Felicita. This institutional ecology—a microfinance organization in Guatemala established as an outpost of a microfinance network centered in Bangladesh and financed by a foundation headquartered in Austin, Texas—is also an example of the new “small world” of development.

Most important, Grameen Guatemala, and indeed all Whole Planet Foundation partners, adhere to what may be understood as a Grameen model of micro-finance. Founded by Muhammad Yunus in 1983, the Grameen Bank pioneered a simple model of credit whereby small groups of poor women are able to secure small loans at reasonable rates of interest. The model is meant to serve as an alternative to both formal systems of banking that demand collateral and exclude the poor and informal systems of finance that prey on the poor. Premised on the idea that the poor are inherently entrepreneurial, the Grameen Bank bets on the generation of income and the smooth repayment of such loans. After all, as one treatise on the Grameen Bank puts it in its title, “the poor always pay back” (Dowla and Barua 2006). Women are seen as particularly important conduits of microfinance loans with an altruistic propensity to utilize income for social development, such as the schooling of children, improved household nutrition, or investment in a home. Implemented widely in Bangladesh, the Grameen Bank model is today a global phenomenon. Actively promoted by the Grameen Bank itself, for example through organizations such as the Grameen Trust, Grameen-style microfinance is ubiquitous—connecting the grocery stores of North America to the remote villages of Guatemala. It bears the powerful promise of a model that works, one that can deliver poverty alleviation and the empowerment of women. In recognition of such efforts, Muhammad Yunus and the Grameen Bank were awarded the 2006 Nobel Peace Prize. The Prize committee credited them with the creation of “economic and social development from below.” “Lasting peace,” the committee noted, “cannot be achieved unless large population groups find ways in which to break out of poverty. Micro-credit is one such means” (Mjøs 2006).

Microfinance, as it reaches poor women such as Felicita, is an example of the democratization of capital. It seeks to transform hitherto exclusionary systems of finance into those that include the poor. In addition, it facilitates flows of philanthropy and investment—from foundations in the prosperous global North to organizations that serve the poor in the global South. But such capital flows also include a vast array of microtransactions: from the consumer at the Whole Foods Market check-out line who makes a $1 donation to the young volunteer who records stories of microentrepreneurs. This is the democratization of development, a widespread ownership of the ideas and practices of development that defies centralized edifices such as the World Bank or even the Grameen Bank. It makes the world small.

I was to be reminded of such small worlds as I completed the writing of this book. When I first encountered Felicita’s “photo-story” in that Whole Foods Market in Berkeley, I was already immersed in the study of the globalization of microfinance. Her story was a reminder of a larger story that had become the focus of my research: how a model of poverty alleviation with roots in Bangladesh came to be widely adopted, promoted, and even criticized and challenged. A year later, I returned to the image of Felicita, wanting to reproduce it here, in this book, to narrate a brief account of the reaches of microfinance. I submitted my request to the Whole Planet Foundation, expecting to navigate a tedious maze of permissions and copyrights. It is commonplace for such requests to remain unanswered: organizations have more important issues at hand; often they do not own their images and must identify and seek permission from the photographer. But this time I heard back in a matter of days, from a young man, Alexander Crane, who wrote explaining that he had served as an intern at Grameen Guatemala and that the photograph of Felicita that had caught my eye was taken by him. Alex was no stranger to me. He was enrolled in a class that I was to teach at the University of California, Berkeley, titled “Global Poverty: Challenges and Hopes in the New Millennium.” While I had not yet met him, he was one of the hundreds of “millennials” I encounter in this classroom, a generation of world citizens eager to tackle the urgent problem of persistent poverty, brimming with enthusiasm as they spend their summers in Guatemala to Ghana, often convinced by what Alex, in his email to me, called the “transformative power of microfinance.” For a riveting moment, Felicita, Alex, and I were bound together in a “small world,” a cluster of coincidence and serendipity amidst the millions of women microentrepreneurs who receive loans and the thousands who are photographed by yet thousands of young volunteers and interns.

This book is about such “small worlds.” That phrase makes reference to a series of striking compositions produced by early twentieth-century artist, Wassily Kandinsky. Small Worlds IV is the cover of this book. I am drawn to the drama of Kandinsky’s “small worlds,” its complex vectors of movement, its colliding and colluding worlds. For me, the painting evokes the drama that is at work in microfinance and in the making of development. While Felicita’s story is of crucial importance, that is not the one I have chosen to tell in this book. Instead, I outline the larger story of the democratization of capital and the democratization of development. Like the drama of Kandinsky’s painting, these are intense and furious struggles. Two in particular are central to this book.

First, the globalization of microfinance has generated great interest in microfinance as an “asset class,” or as a circuit of investment. While the Grameen Bank promises to alleviate poverty and empower women through a non-profit model of financial services, new models of microfinance institute strict norms of financial sustainability and emphasize profits rather than human development. This, as one famous text puts it, is the “microfinance revolution” (Robinson 2001). It bears a new promise: that the “bottom billion”—the world’s poorest—will serve as a “frontier market,” opening up new horizons of capital accumulation. Microfinance then is no longer the sole domain of non-profit organizations such as the Grameen Bank; it is the domain equally of commercial banks, investment vehicles, and money markets.

The remaking of microfinance is part of a broader transformation of capitalism itself, what Bill Gates (2008) labels “creative capitalism.” This kinder and gentler capitalism seeks to aggressively mine the “fortune at the bottom of the pyramid,” but in doing so it also hopes to eradicate “poverty through profits” (Prahalad 2004). It is in this sense that it is possible to think about “poverty capital” and to conceptualize microfinance as a chip or microprocessor in such formations of capital. The complex question at hand, one that animates quite a bit of this book, is whether “poverty capital,” and specifically microfinance, will ensure financial inclusion, on fair and just terms, for the world’s poor. Can microfinance, as an asset class, sought after by Wall Street investors, maintain this social purpose? Or will it fuel financial speculation, predatory capitalism, and ever-expanding debt?

Second, microfinance is one of those rare development ideas that originated in the global South and was taken up by powerful development institutions in the global North. Pioneered in Bangladesh, by the mid-1990s microfinance had become a development panacea, a globally favored practice of poverty alleviation. This reverse flow of ideas and practices—from the Grameen Bank of Bangladesh to the World Bank—suggests a democratization of development. Yet, as the microfinance revolution has sought to promote “poverty capital” so it has sought to remake paradigms of knowledge. Today, microfinance expertise is produced by the World Bank as much as it is by the Grameen Bank. Indeed, it is the World Bank that controls the portals of knowledge, establishing the norms, metrics, rankings, and best practices of microfinance. World Bank training workshops, texts, and reports disseminate such authoritative knowledge, investing some experts with the authority to be microfinance experts and denying others legitimacy and significance. In short, what is at work is a “Washington consensus on poverty.”

In this book, I reveal the workings of the Washington consensus on poverty. But I also demonstrate how such forms of power come to be challenged and contested, how a lively battle of ideas continues in the field of microfinance. While I start at the power nodes of development aid and policy, I eventually journey to the margins of such geographies of power, examining how development institutions in the global South, as varied as the Grameen Bank and BRAC in Bangladesh and Hezbollah in Lebanon, continue to forge a different model of microfinance. Whether or not such ideas have traction, whether or not they represent an original and indigenous version of microfinance, and whether or not they are able to provide robust alternatives to dominant paradigms, are all issues that I tackle in this book.

I believe that such questions—concerned with the democratization of capital and the democratization of development—are important. They speak to the lives of poor women such as Felicita for these lives are now entangled, for better or for worse, with the making of “poverty capital.” But they also speak to the hopes and aspirations of “millennials” such as Alex Crane. These lives too are entangled, for better or for worse, with the remaking of development. Will such conjunctures and collisions produce a new set of “small worlds,” those that are worth inhabiting and defending? This chapter tells the story of millennial development and its millennials. In doing so, it identifies some of the key issues at stake in the democratization of capital and development: how poverty becomes visible; how markets work or fail; and how development attempts to tackle the uneven geographies of the contemporary world.

MILLENNIAL DEVELOPMENT

The turn of the century has been marked by the emergence of a remarkable global conscience: an awareness of world poverty and the articulation of the will to end poverty. The stark fact that of a world population of 6.7 billion people, 1.4 billion live under the unimaginable conditions of earning less than $1.25 a day, is now common sense (World Bank, PovertyNet, 2008 figures).

Of course, there is nothing new about poverty. The issue is how and why at particular historical moments, poverty becomes sharply visible and serves as a lightning rod for social action and change. This occasional transformation of poverty into a “public” issue has taken place at different times and in different forms. At moments of political conservatism, poverty has been framed as a problem of delinquent behavior requiring moral discipline and the imposition of social order. Such was the case in the 1980s as conservative political regimes on both sides of the Atlantic promoted the stereotype of the dependent and undeserving poor, those dependent on welfare and unwilling to work, victims not of structural forces but rather of their own laziness and lack of responsibility.

At other times in history, poverty has been interpreted as a problem of the national economy and its management. This was the case just after World War II, when a multilateral or multinational system of development— the Bretton Woods order—was established, with the World Bank and the International Monetary Fund (IMF) at its helm. This system sought to “modernize” national economies. It was premised on the idea that development was a ladder with stages of economic growth; some countries were at the top and others had to quickly catch up.

What is unusual about the present historical moment is that poverty has become visible as a global issue. The focus has shifted from the modernization of national economies to the alleviation of the poverty of the “bottom billion,” the 1.4 billion people such as Felicita living under the threshold of the international poverty line. There is also a rapid globalization of the responses to poverty—from the global campaigns that are being waged to “make poverty history,” to the global dissemination of poverty-alleviation “best practices,” to the radical critiques that link poverty to the global economy and thus insist that “another world is possible” and necessary. In short, a new global order, what I call “millennial development,” is taking shape.

Millennial development is the confluence of various forces. To begin, there is a remaking of development as a “kinder and gentler” process, one that is as concerned with human development as previous eras were concerned with economic growth. In the 1990s, the World Bank made the alleviation of poverty its top priority. In 2000, the member states of the United Nations (UN) adopted the Millennium Development Goals, an ambitious set of human development goals that were to be achieved through global cooperation by 2015.

As development institutions consider anew the goal of human development, they have developed a new set of development...

Table of contents

• TITLES OF RELATED INTEREST
• Contents
• Preface
• CHAPTER 1 Small Worlds
• CHAPTER 2 Global Order
• CHAPTER 3 Dissent at the Margins
• CHAPTER 4 The Pollution of Free Money
• CHAPTER 5 Subprime Markets
• References
• Index