Economy/Economic Policy

Microcredit Skeptics Deserve a Turn in the Limelight

Saturday, May 14, 2011

Bad news came this week for shareholders of India's largest microlender. That offers a chance to tout two writers who always said high interest rates--of 20 percent and higher--were never the best news for the world's poorest female borrowers.

(WOMENSENEWS)--News this week that India's largest microlender, SKS Microfinance, reported heavy losses brought two names zinging to mind: Barbara Crossette and Susan Feiner.

Both are part of Women's eNews' loose-knit editorial team. Both took issue with the generally bullish outlook on microfinance as a means of ending--or even curbing--female poverty that prevailed for many years.

Around now both writers, in the wake of all the troubles surrounding microfinance, could and should be saying "I told you so." Since they're not, I'd like to do that for them.

Crossette is an author with extensive experience covering the United Nations, including a long career for The New York Times. She has written for Women's eNews and serves us with occasional editorial guidance. Eight or so years ago she gave us a tip about covering microfinance or microcredit that became our ironclad rule: "Ask about the interest rates."

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That information was not at the top of microfinanciers' press kits. When Women's eNews' reporters asked the question the answer they got was startling: a common range of between 20 percent and 50 percent. Wow.

When I told people about those rates their eyes often widened in horror. They'd picked up on the "women's empowerment" virtues of microfinance and had a hard time believing it was true. Why so much higher than the 6 percent or 8 percent paid by middle-class U.S. borrowers?

The story line--which you can see running through our coverage, some of which is in the related stories provided below--was that even though micro-borrowers' collective repayment rate was a stellar 98 percent, they were a high credit risk because they had no wealth whatsoever to seize in the event of a default.

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I spent 2 years following the work of Muhammad Yunus and am just finishing up a film on both microcredit and Yunus' social businesses. What I saw over there was how it empowered women, by giving them a voice in the family, getting them to learn about a be a part of the family finances and even in some cases go on to local office. I saw that growth was slow and steady, and sometimes had set backs. It is life afterall. The women starting out were starting in a really bad way, with lack of so much we take for granted. Looking at branches that had been around for over a decade, you could see the difference in how well fed the women were and their confidence. They also learned many things by coming together weekly that were also important and should be noted. They told me how they had learned to be clean or were happy that they had a toilet now. Things that I wouldn't have imagined as progress. Seeing what they were going through made me appreciate what our great-grandmothers fought for here long ago. It's not a panacea, but nothing is. It is an important tool to millions who have close to nothing. Grameen is a fine model that needs to be replicated. They put their money back into other services that are also desperately needed - healthcare, education, alternative energies, the list goes on. Grameen has the lowest interest rate of all the banks and actually had a self-sufficient model, so they could practice what they preach and not be taking handouts from anyone. If we can get away from the handout mentality that wastes so much valuable time from charities, and move to a more truly sustainable world that empowers individuals and organizations to focus on doing what they are aiming to do in their mission statements, we'd have an amazing world.

This report does not surprise me, I only am surprised it took so long for this to come to light. Microloans are given to women with little or no supports of any kind, so they are very vulnerable to the lenders and from the beginning, this seemed to me to be a way to use poor women in order that a money lender could have a locus of easy control. Thus, the women moved from loss of whatever lives they had, to a slave like existence toward their financiers. There are people who appear to be doing good, and often are honoured for this, while they have really found a way to line their own pockets more than anything.

This is a very important issue, and I've also been concerned about stories of women getting deeply into debt on micro loans. But the NYTimes article says only that a main reason for the bad earnings of the bank was that people were encouraged not to repay loans by the government. Neither it nor your article offers data or specifics about why the government says it did this. In the absence of such details, one could conclude that officials wanted the program to fail because it was empowering women 'too much.'

One small comment: All the microcredit companies seemed to be big businesses into making money. My experience with microcredit in India is mainly with Jaya Arunachalam's Working Women's Forum in Chennai, and more remotely with Ela Bhatt in Gujarat.
These women created microcredit for very poor women not to make money in the process of giving them access to microcredit.
So the failure of all these big microlenders is a sort of delightful justice, only if very poor women don't suffer from these microlenders' greed. Because it may well be that these companies have just replaced the pawn-brokers the poor women had to deal with before.