The Democratization of Capital? Microfinance and Its Discontents
By Ananya Roy
Microfinance is once again in the global headlines. In the last few months this “magic bullet” of poverty alleviation has been on the front pages of newspapers. But these headline stories of microfinance are deeply contradictory. Here for example are three recent snapshots of microfinance.
One. Microfinance, the provision of financial services to the poor, is the most cost-effective tool of poverty alleviation and gender empowerment around. Recently, Nicholas Kristof has argued that microfinance may be much more effective in combating “terror” than “bullets and drones.” In Pakistan, Kristof credits microfinance NGOs with having created jobs and educational opportunities” and thereby “draining the swamps that breed terrorists” (Kristof 2010).
Two. Microfinance is a new frontier of global capital yielding millions of dollars in profit for venture capitalists and other investors. Earlier this year, India’s largest microfinance organization, SKS Microfinance, completed its first initial public offering. Since then it has become a “stock market darling.” Vinod Khosla, the Silicon Valley billionaire venture capitalist who is one of its investors lauded profit-making microfinance as a sustainable enterprise, noting that he is “relatively negative on most NGOs and their effectiveness” (Bajaj 2010).
Three. Microfinance is a system of exploitative and predatory lending that traps the poor in cycles of indebtedness. A recent New York Times headline story reports that in India the microfinance industry faces high rates of default and is on the brink of collapse. As with all microfinance stories, this one too comes with photographs of poor women, except that this time they are not proudly displaying the fruits of their entrepreneurialism or nurturing their children; this time they are fleeing debt and lamenting the loss of assets, dignity, and even life. “Indian officials fear that microfinance could become India’s version of the subprime mortgage debacle … a reckless, grow-at-any-cost strategy” (Polgreen and Bajaj 2010).
Let me put forward the provocation that all three snapshots, although at odds with one another, are true depictions of microfinance. The contradictory character of microfinance is captured in its key logic: the democratization of capital.