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Microcredit Critics Say Debt Doesn't Equal Emancipation

by Kanya D'Almeida

UNITED NATIONS - In response to a pelting critique from academics, economists and grassroots organizers worldwide, the 2011 State of the Microcredit Summit Campaign Report plans to address the controversies surrounding a development scheme that many believe to have failed.

The report, which is set to be released Mar. 7 in Washington D.C. to great fanfare, will be presented by the 2006 Nobel Peace Prize Laureate Muhammad Yunus, founder of the Grameen Bank in Bangladesh, a man who has earned himself a reputation as either the Superman of poverty-alleviation or the Judas of social change, depending on who you talk to.

Since Yunus accepted his million-dollar award in 2006, a tempest of questions, censures and confusions has battered at the doors of Micro Finance Institutions (MFIs), whose small-scale loans many are calling "micro band-aids" on the wound of inequality that the world is currently nursing.

The 2010 Global Wealth Report published by the Credit Suisse Research Institute showed that as much as 0.5 percent of the total world population, or approximately 24.5 million people, joined the ranks of the world's dollar millionaires last year. Simultaneously, according to a 2010 report by the United Nations Food and Agriculture Programme, 925 million people are living in abject poverty, surviving on less than a dollar a day.

Speaking at an event last week at the United Nations, the permanent representative of the mission of India to the United Nations, Ambassador Hardeep Singh Puri, said, "Sixty- five years after the U.N. was founded, the global order remains inequitable and the success of some makes the poverty of others in a globalized world look more shameful than ever before."

Representing a country where MFIs have penetrated several thousand villages, but has lost 100,000 destitute farmers to suicide, Puri's words raise serious questions about development policies that do not appear to be working.

Micro Loans Don't Make a Macro Difference

"In 1997, 2,900 people from 137 countries came to Washington D.C. for the first ever Microcredit Summit when we pledged to reach 100 million of the world's poorest families by 2005," Sam Daley-Harris, the director of the Microcredit Summit Campaign, told IPS.

"In homage to our success in Washington, the U.N. declared 2005 as the Year of Microcredit," he added.

Despite reaching their goal two years late, Daley-Harris continues to be optimistic about microcredit's potential as a vehicle out of destitution. However, with poverty on the rise and banks fattening off of interest, scores of observers are taking a very different stand.

"Bangladesh and Bolivia are two countries widely recognized for having the most successful microcredit programs," said Robert Pollin, co-director of the Political Economy Research Institute at the University of Massachusetts, "yet they remain two of the poorest countries in the world."

Farooque Chowdhury, co-author of the 2007 United Nations Development Programme-sponsored report on Bangladesh, has written extensively on the failures of microcredit in the land of its inception, traveling to scores of villages to track the collapse of the program.

"Nothing pro-poor can be based on the philosophy of isolated households competing with their peers," Chowdhury said. "The poor have to unite and face the market's ideology and allies, the onslaught of finance capital and capital's design to subjugate the poor."

According to Chowdhury, one need only trace the origins of microcredit as a profit-making venture to the doorsteps of huge international financial institutions, multinational banks, agencies like the Bretton Woods Institutions and philanthropic organizations to see that any plan which enriches the "big boys" cannot possibly end the structural, cyclical problem of poverty.

The celebrated Indian development journalist P.Sainath noted "the interest rates micro-indebted women are paying in India are far higher than commercial bank lending rates," adding that debt will never amount to emancipation.

Riding on the tails of the week-long World Social Forum in Dakar, an assembly that drew tens of thousands of activists to articulate visions of "Another World", the Microcredit Summit Campaign Report is more vulnerable than ever to denouncement, particularly at a time when citizens of the world are fighting tooth and nail to hold national governments accountable to their people.

"Microcredit was adopted by multinational institutions and advertised as a panacea for poverty alleviation," Omar Dahi, a professor of economic development at Hampshire College, told IPS. "This fits within a neoliberal agenda of arguing that the state should withdraw from being active in development and that the private sector can solve the problem of poverty."

"It can't - in fact it exacerbates the problem," Dahi added. "The most successful microcredit has been when it in fact was complemented with the state doing its job in terms of providing infrastructure, education and health care."

"The other alternative is workers and peasants cooperatives, but that of course, is not microcredit," he concluded.

Microcredit also compliments the neoliberal supposition that the only way out of poverty is for the poor – particularly women, who already strain under the yoke of unpaid domestic labor – to work even harder for a pittance.

This paradigm does not address issues like the loss of land rights or the privatization of fundamental public services such as healthcare and education, in the absence of which poverty will only replicate itself in a vicious cycle.

Political journalist Alex Cockburn notes, "Back in the early 1970s there were huge plans afoot to change the entire relationship of the Third to the First World."

He added, "At the United Nations radical economists were hard at work drafting plans for a New World Economic Order. All that went out the window and here are the caring classes 30 years later, hailing microloans."

Women: Double Victims of Debt

Because women supposedly have a higher loan repayment rate than men, and traditionally use their loans to support their families and communities rather than themselves, MFIs have found it both financially lucrative and highly beneficial to their public-image campaign to pursue women, "the poorest of the poor" in this endeavor.

However, various economists and researches have pointed out that women are easy prey for mammoth multinationals, and are particularly vulnerable to the brutal loan-collection systems that MFIs enable.

Susan F. Feiner, director of Women and Gender Studies at the University of Southern Maine, points out that the 'communal nature' of the microcredit loans creates the problem of 'collective liability', where one woman's failure to repay her loans will result in collective punishment for the whole group.

This dynamic, which has led to women fiercely policing each other, shatters the much-needed solidarity between rural women and stands firmly in the way of more radical, women-centered grassroots organizing against the structural conditions of poverty, she said.

In a study of women borrowers in the southern Indian state of Andhra Pradesh, Sainath points out, "During recent floods in the province, freelance journalists came to a village where everything had been washed away. The first people back in were the microcreditors threatening women, demanding monthly installments from women who had lost everything."

Several other studies have brought to light the methods by which women who fail to repay their loans, at absurd rates of interest, are degraded, assaulted or threatened by local money-collectors in their communities, a system which adds another layer of oppression to the most world's most destitute populations.

"The microloan business is fast becoming a gigantic empire, bringing back into control the very banks and bureaucracies women have been trying to bypass," Cockburn said. "Microcredit is becoming a macro-racket."

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