Microfinance Misses its Mark…Romanticizing the Poor

[idlisambar]

Two interesting essays by Aneel Karnani, a critic of “Bottom of the Pyramid” development strategies. The first deals specifically with the false promise of Microfinance. The second covers some of the same ground but also takes a critical look at efforts to target the poor as consumers:

http://www.ssireview.org/articles/entry/microfinance_misses_its_mark/


“Microcredit is the newest silver bullet for alleviating poverty. Wealthy philanthropists such as financier George Soros and eBay co-founder Pierre Omidyar are pledging hundreds of millions of dollars to the microcredit movement. Global commercial banks, such as Citigroup Inc. and Deutsche Bank AG, are establishing microfinance funds. Even people with just a few dollars to spare are going to microcredit Web sites and, with a click of the mouse, lending money to rice farmers in Ecuador and auto mechanics in Togo…..

…..Although some microcredit clients have created visionary businesses, the vast majority are caught in subsistence activities. They usually have no specialized skills, and so must compete with all the other self-employed poor people in entry-level trades. Most have no paid staff, own few assets, and operate at too small a scale to achieve efficiencies, and so make very meager earnings. In other words, most microenterprises are small and many fail – contrary to the United Nations’ hype that microentrepreneurs will grow thriving businesses that lead to flourishing economies.”

http://www.ssireview.org/articles/entry/romanticizing_the_poor/

“….many corporations exploit poor people’s vulnerabilities, such as their lack of education and their desire for cheap relief from chronic distress. For example, in Malaysia, bottles of samsu— cheap spirits that poor people favor—claim to be “good for health cure rheumatism, body aches, low blood pressure, and indigestion.” Labels also claim that samsu is good for the elderly and for lactating mothers…..

…..It is not only tobacco and alcohol companies that exploit the weaknesses of the poor: Even Unilever, a consumer products company, preys on the anxieties of disadvantaged people. The multinational corporation markets a highly profitable skin-whitening cream called Fair & Lovely to women in 40 countries across Asia and Africa, especially India…..

….Fair & Lovely’s commercials typically depict a depressed woman with few prospects who gains a brighter future by attaining either a husband or a job after making her skin markedly fairer. Several nongovernmental organizations (NGOs) and government officials say that the ads are racist and sexist, and that they entrench women and darker-skinned people’s disempowerment.15 Nevertheless, Unilever still claims to be socially responsible….

…..I have found little evidence suggesting that poor people are particularly discerning consumers or creative entrepreneurs. Instead, and on many counts, they are worse consumers and entrepreneurs than their wealthier counterparts, and they suffer the worse for it. Yet corporations, governments, and NGOs romanticize the poor. As a result, they continue to rely too heavily on market solutions to poverty.”

[Warpy]

1. Romanticizing the poor?

There is nothing romantic about not knowing when or if your next meal is coming. It's especially unromantic when you're looking at your kids experiencing the same thing.

The microloans I've given are partially to ingenious businesses, like the old lunch wagons converted into traveling leather goods shops or the motorcycles jerrybuilt into small shipping vehicles that can go where there are few wide highways. However, yes, most are unglamorous things like cheap resin tables and chairs in a bush restaurant or more bottles of shampoo and soap for an open market stall. The income that the mostly poor women get from these things will help keep their kids in school, and raising their kids' horizons is really what it's all about. The loans are short term and once they are paid off, the business has expanded and the extra money starts to come in.

Nothing is glamorous or romantic about poverty. Doing nothing for a few people because I can't do things for all of them is unconscionable.

This article seems to be all about justifying hopelessness and selfishness.

[idlisambar]

3. ....

I don't think the author is denying some that good comes from microfinance, I think his main thesis is that it is no replacement for organized government action. He does attack the other practice he looks at -- targeting the poor as a "market". As it effects development, it all comes down to what they are buying, and I think he makes some good points there.

[Warpy]

4. Unfortunately, organized government action

has generally come from outside the society and has been badly bungled for many years, leading to Western style resource development that doesn't serve the needs of the indigenous population very well and in some cases has been socially destructive.

Their own governments are ill equipped to mount much action. These are the poorest countries in the world we're talking about.

I'm not second guessing what any folks in the third world are choosing to do and to buy. They know their needs better than I do. I'm just contributing a few bucks toward filling those needs.

[idlisambar]

7. it is unfortunate

It sounds like you have a particular place in mind, though you could be describing many places. I am well aware that their are places in which the government is poorly equipped and/or corrupt, but that doesn't mean that government organized action is any less necessary, it just makes it more difficult to come by.

As far as "second-guessing" is concerned, why shouldn't we. Ignoring the actual effects of policies and measures is generally a bad idea no matter who or what we are taking about. Would you also suggest we not second-guess what Wall Street investment banks do with their bailouts? Could you honestly be suggesting that, for example, creating social pressure to spend money on "Fair and Lovely" represents progress? Perhaps you are mixing up the issues of Microfinance vs. targeting the poor for consumption.

Concerning Microfinance no-one is suggesting it doesn't do some good, the author explicitly points out that it does. The issue is whether it represents an effective development strategy, effective enough,that is, to be a substitute for government organized action. In retrospect, I may have done the author a bit of a disservice by placing emphasis on certain quotes that taken out of context seem insensitive or dismissive -- that's my mistake.

[Warpy]

9. Have you ever tried to wash your hair with home made soap?

I have and the results were less than clean and certainly far from lovely. Those poor women selling soap and shampoo in a market stall are not "targeting other poor people for consumption," they're providing good and useful products that will help those other poor women free up time and resources that would have gone into less than adequate homemade soap. Perhaps you see some romance in soapmaking. I've done it so I don't.

My own philosophy is that economies run from the bottom up and that every dollar you put in at the bottom is magnified in its effects on the way up through the economic stream. Yes, the weasels at the top will eventually profit, but if enough people at the bottom are enabled to see themselves out of poverty and hopelessness, perhaps their days will be numbered.

I'll rely on the people in those countries to act when the time comes. I've seen little good in the world that has come from the top down unless the top has also concentrated on raising the floor for the bottom as in the New Deal in this country.

In the meantime, I'll make sure that woman sitting in a market stall has enough product to sell to keep her kids in school. I can't fix her government but I can make sure she improves her own life.

[jwirr]

2. As a poor person I call BS. What the wealthy - including most Americans -

do not realize is that subsistence is better than nothing. I have been on the site Kiva.org and most of the loans are for things like a flock of chickens or money to start a small store for some needed items. And most are paid back often asking for more to expand the business.

Oh sure very few end up with a corporation but I do not think that is the goal. Like the USA in the beginning they are working at starting small. Our farms were often less than 40 acres and stores served communities not bigger areas. I also suspect that these so called subsistence businesses are better than working slave labor in multinational corporations.

Far from romanticizing the poor this article patronizes the poor - the article makes it sound like they by and large are too ________ to succeed. That is not an unfamiliar mis-concept.

[Warpy]

5. Thank you, that's how I saw it, too

I guess the experience of poverty has affected us both.

[jwirr]

6. And thank you. I very much appreciate your posts. You know what is

up.

[fasttense]

8. I always felt that micro-loans were not the cure for all the ills of the poor.

that some people think they are.

"Most microcredit clients are not entrepreneurs by choice; they would gladly take a job at reasonable wages if one were available. This should not be too surprising. Most people do not have the skills, vision, creativity, and persistence to be an entrepreneur. Even in developed countries with high levels of education and access to financial services, about 90 percent of the labor force is employees, not entrepreneurs. Meanwhile, as borrowers struggle to repay loans that are unlikely to lift them out of poverty, some microfinance institutions earn handsome returns—such as the 100 percent compounded annual rate of return that investors in Banco Compartamos received."

Some of theses micro-loan companies are scams and some offer education and training, which increases the likelihood of success. But most of the micro-loans are loans to poor people so they are able to feed and take care of their families. The loan will not make them rich, just allow them to survive.

But as the author points out, a micro-loan is no substitute for government regulation to prevent abuse of the poorest among us.

[upi402]

10. What about the romanticizing of the "Free" Market?

Now THERE'S a fictional fantasy for ya


meh


blame the poor BS is nothing new