Empuzzlement

One perspective through which I am judging microfinance is Amartya Sen's notion of development as freedom. What do we know about when microfinance gives people more agency in their lives and when it, contrarily, reduces their control over their circumstances (the main worry being debt traps)? With regard to microfinance, "empowerment" usually refers specifically to helping women break the bonds of sexism within their families and societies. But for me it means increasing agency in Sen's more general sense.Nothing in this book project has puzzled me more than this question as it relates to microcredit. Sen sounds cautiously optimistic:

The availability and access to finance can be a crucial influence on the economic entitlements that economic agents are practically able to secure. This applies all the way from large enterprises…to tiny establishments that are run on micro credit.

Portfolios of the Poor makes an upbeat assessment. Microfinance is a rock of Gibraltar, offering poor people leverage over the uncertainties of their lives:

Whether or not the microfinance movement was right to stress loans for microenterprises, or has been too slow to embrace savings and other services, its greatest contribution is, to us, beyond dispute. It represents a huge step in the process of bringing reliability to the financial lives of poor households. For many poor people, having to deal with unreliable financial partners is just part of a general environment of unreliability that they must live with every day….Through their financial behavior, poor households show that they are impatient for better-quality services, inventive in bending such services to suit their own purposes, willing to pay for them, and longing for more reliable financial partners. Microfinance providers have made a determined start in responding to these demands, and now many others are joining in, urged on by an increasingly well-informed public.It is hard to exaggerate the importance of these developments, which we saw clearly when we looked at microfinance through the eyes of Bangladesh diarists….[B]orrowers appreciated the fact that, relative to almost all their other financial partners, microfinance providers were reliable. That is, the loan officers came to the weekly meetings on time, in all kinds of weather; they disbursed loans in the amount they promised at the time they promised and at the price they promised; they didn’t demand bribes; they tried hard to keep passbooks accurate and up-to-date; and they showed their clients that they took their transactions seriously.In return, we noticed that these Bangladeshi microfinance clients often prioritized the repayment of microcredit loans above those of other providers….For poor households, as we have seen, financial lives are often uncertain. The income that provides the stuff of their financial transactions is small and often irregular and unpredictable, and most of their financial partners are not as reliable as they would like. When you need money, moneylenders may not have the funds to lend, and moneyguards may not be able to return your savings. Savings clubs may break up because of poor management, misunderstandings, or accidents that befall members. Money stored at home can be lost, stolen, or wasted on trivial expenditure. The poor deserve something better. Could it be, then, that financial services will become the first globally reliable service that the world’s poor enjoy? (pp. 26--27)

Yet bleaker analyses are not hard to find. Here is Richard Montgomery on the Bangladeshi group BRAC in the mid-1990s:

This exclusionary pressure on the poorer and more vulnerable members is an issue that is rarely discussed in the literature on the successful Bangladeshi microcredit schemes. However, one of BRAC’s own research studies recounts a conversation with BRAC women in which '... they told...with pride that they had pulled down a member’s house because she did not pay back her housing loan'...This dramatic example of violent collective action may not be common---more subtle social sanctions within a community may be all that is necessary. However, examples of 'forced' acquisition of household utensils, small livestock, or other assets of defaulting members were mentioned....In cases where fellow members had been reluctant to take such collective action they were either directed by field staff to do so, or the field staff themselves had carried out such actions.The scale of this exclusionary problem is difficult to estimate….It is not clear how many of these ‘drop-outs’ are leaving for reasons other than peer or staff pressure because of poor repayment discipline. Some are certainly leaving BRAC because they are unhappy about the lack of access to personal savings. However, our impression is that most of the drop-outs are leaving because of an inability to fulfil the rigid requirements and discipline inherent in the BRAC lean repayment system, and most of these drop-outs are the poorer among the membership.

And don't forget the woman who was both microcredit client and moneylender and who proudly told Lamia Karim about how she had literally broken the houses of those who could not pay.Linda Mayoux seems to stake out a thoughtful middle ground, emphasizing that the potential of microcredit to empower women is not automatically realized. However, she seems to muddle means and ends, implying that the key to assuring that microcredit empowers (the end) is having that concept in mind when one designs the microcredit program (means). Yet to listen to Portfolios of the Poor, stripped-down, self-financing, commercial microcredit can empower even when not motivated by an intention to help women break the sexist social structures.As I've struggle to make sense of these and other readings, I've only managed to compose these general conclusions:

• The world is a complicated place. Microcredit affects different people differently.
• Empowerment is extremely hard to define and measure. That makes rigorous evidence on it scarce.
• Debt is dangerous, especially when creditors become too eager to lend. That makes aggressive financial support for it, especially when based on exaggerated expectations, a bit scary. How hard should donors push something (debt) that is easier to get into than out of?
• On the other hand, ~50 million poor people can't all be wrong, can they?
• People often exercise their freedom to reduce it. In order to manipulate themselves and their circumstances, they voluntarily commit to the discipline of regular loan payments, as a way of saving. The paradox of freedom and bondage is inherent in debt.

What do you make of all this?