What are the sources of informal credit

| Microcredit and the Discovery of Women

Since the 1970s there has been talk of the "discovery of women" in development policy. The World Bank adopted the tireless advice from feminists that women and their work are underestimated: the "invisible women" should be visible, integrated into development as an "unused resource" and their "underutilized work" mobilized for markets and growth become. As is well known, discovery has a lot to do with invention.

This strategy has recently been continued on the part of the financial markets: marginalized and poor sections of the population are integrated into exploitation processes as homo oeconomicus in their “own interest”. This form of neoliberal empowerment opens up opportunities for women, arouses hope for equality and offers opportunities to manage or even reduce their poverty. The women just have to take their own initiative. This opportunity arises at precisely the point in time when a finance-dominated accumulation regime is on the rise in the global south.

The gender-specific topos that accompanies the financial inclusion of low-income women is their unconditional reliability. Whether remittances, cash transfers or microloans - you can rely on women. Linking financial market integration with moral ascriptions and their naturalization not only financializes everyday life. It also creates new market subjects - a new socialization of women.

As migrant workers, women are reliable referrers. They are more long-term oriented, more socially binding and more emotionally bound than male migrants. Their financial discipline guarantees continuous transfers with high currency and development policy importance. The World Bank estimates the remittances officially transferred via banks to developing countries in 2011 at 325 billion US dollars - plus the funds informally transferred via transnational networks. That is three times the official development aid. Social reproduction works here to a large extent through the export of female workers and the return of foreign currency. Specialized financial service providers, above all Western Union, benefit from the social sense of duty of »transnational mothers«. They collect up to 20 percent fees as transaction costs.

Because of their sense of responsibility, women - always addressed as mothers - also receive conditional cash transfers (CCT) in some Latin American countries. On the condition that they send their children - especially their daughters - to school, have them vaccinated and receive medical care. The monthly cash transfers to mothers are considered innovative instruments for social security and poverty reduction.

However, the central development policy instrument of poverty management through neoliberal market integration of women is microcredit. Capitalizing on the female repayment ethic, an entire financial industry has developed over the past two decades. It sells high-interest microloans to poor women in the global south and creates microfinance funds in the global north that are both ethical and profitable investment opportunities. The sector now has its own rating agencies and promises high returns and growth potential. According to estimates by financial service providers, three billion people worldwide are “underserved” and are waiting for “financial inclusion” - according to the World Economic Forum 2011. Poor women from the villages and slums of the global south are integrated into the global financial markets via a credit and debt chain. They become dependent on investors or even on small investors in the global north, whose return in turn depends on the repayment rate. Credit and investment as instruments of poverty reduction and women's empowerment interweave social reproduction on the everyday level with the reproduction of the global financial industry.

From needs orientation to economization

Since the liberalization of the financial market in 1991, more than 3,000 commercial microfinance institutions (MFIs) have sprung up in India, "penetrating" "underserved" areas. Tens of thousands of male agents were sent into the villages, creating a credit glut there. They collected bonuses for chasing each other off. The rise of the new financial industry culminated in the summer of 2010 with the IPO of the market leader SKS, which - grandiose oversubscribed - was able to raise fresh capital of 350 million dollars. SKS entered into a cooperation with the transnational Metro group, whose goods SKS brought to the borrowers via a franchise system.

The boom in MFIs destroyed existing informal savings and loan systems that women's groups - sanghams - organized themselves in the context of village power relations - against poverty, the caste system and the oppression of women. The Sanghams decided together about their savings and who would get a small loan in an emergency.

Commercial lending also marginalizes NGO-run self-help groups funded by the Indian development bank NABARD and the World Bank. These granted women start-up capital for an »income-generating activity« - preferably as a micro-entrepreneur or mini-cooperative. According to the Grameen (village) model of Nobel Prize winner Mohammed Yunus, the whole group is engaged here for repayment, but also for development activities in the village. This self-help movement organized tens of millions of women around a market-like core, namely access to and handling of money. The "human right to credit" proclaimed by Yunus, however, was never universal: the poorest and lower-caste people, the Dalits, regularly dropped out of the self-help groups or were forced out because they were not repayable.

Twenty years ago, when the Indian government cut back investment in the smallholder sector, it made the "financial inclusion" of poor women a goal. The structural change in agriculture caused smallholder incomes to fall by 20 percent. Half of the households are now over-indebted and 230,000 farmers have committed suicide within two decades. Access to credit became more difficult for small and medium-sized farmers, while the women subsistence farmers were suddenly inundated with microcredits. The state initially allowed the new financial industry to grow wild: the loan programs enabled the government to withdraw from responsibility for social tasks, redistribution and direct poverty reduction. Responsibility was handed over to the highly motivated women and their "initiative".

As an instrument of poverty management, financial inclusion was supplemented by the goal of integrating women into employment. To promote this dual market integration, Mohammed Yunus developed social business projects with transnational corporations and commercial banks. In 1998 he accepted a million donation from the agro-multinational Monsanto to finance small loans for agriculture. In return, the borrowers who had previously reproduced their own seeds should buy genetically modified seeds and weed killers from the group. The loan turned self-sufficient producers into market consumers.

This was followed by joint ventures with the Finnish telecommunications group Nokia, the French yoghurt manufacturer Danone and a public-private partnership with the French water supply company Veolia. In the village telephone project with Nokia, borrowers from the Grameen Bank were able to buy a mobile phone and sell telephone time. This initially brought the women income, but quickly failed due to the oversupply of telephones in the villages. Danone was a losing business from the start - every woman in Bangladesh makes her own yogurt. Like the franchise shops, the project opened up new markets and gave the company a social image.

The shops offer women an introduction to modern consumption. TV commercials teach them that urban middle class women buy neatly packaged corporate products in clean supermarkets. A self-help group that jointly runs a “mini supermarket” in Tamil Nadu only sells “modern” products, packaged and welded. The company pumps out the groundwater for the Coca Cola mineral water not far from the supermarket. Spices, oils and remedies made by the village women next door are not included in the range because they are not properly packaged. This is how the self-help group introduces free competition: Group goods stand against the products of small farmers and home producers. The credit-financed supermarket acts as the vanguard of the urban, large-scale corporate market economy. The borrowers are pushing the village economy to the side and devaluing its products as not marketable. Social reproduction is mediated through credit. The differences in interests between the women are growing.

Still, the loans actually mobilize millions of women, but they don't politicize them. Unlike the Sanghams before, they do not offer a starting point for fighting together for one's own rights. Instead, they enable women to cope better with poverty and to compete against each other in the markets. Milford Bateman (2010) speaks of the "destructive rise of local neoliberalism" through microfinance. Praised as an empowerment tool for women, it economizes the existential questions of social reproduction.

The good woman as an entrepreneur of herself

The commercial microfinance institutions also demand group formation - albeit without savings deposits - and call them "joint liability groups". They are based on the assumption that the women can immediately invest the loans productively and repay the income immediately. The group, which used to represent a solidarity and sometimes had an emancipatory character, is now primarily a social control body. The group members do everything possible to avoid the shame that the group may have to stand in for them in the event of repayments. The ethnologist Lamia Karim (2008) therefore speaks of a “culture of shame” that is established through microcredit.

In fact, individual women and groups manage to build up sources of income with the help of small loans, to improve their market position and earnings. However, the majority of women do not use the loans for productive, but for consumer purposes. The extent to which women in the household can influence decisions about the issuance of loans at all varies. In the vicinity of the Grameen Bank - and not only there - violence against women increased because men could not cope with the new role of women.

Often, debts that the man has with the local moneylender are repaid first, where exorbitant interest rates of over 50 percent are common. In addition, costs for medical treatment, medication or for weddings and dowry payments are covered. If credit - conceived as an instrument of empowerment - finances the dowry, it helps to maintain a patriarchal structure that devalues ​​women, violently subordinates them to family authority and economizes gender relations.

In any case, the loans create enormous purchasing power in the villages. Like consumer loans and mortgage loans in the USA, they bring about a "financialization" of everyday life. It is hardly surprising that a "good" woman is now the one who raises credit.

This role empowers women and strengthens their self-confidence. The sheer number of tasks assigned does not frighten her. Rather, they are proud that so much is expected of them - in addition to their field work, the household, the children, the procurement of drinking water and firewood as well as the day labor in the fields of rich farmers. For them, the first thing that counts is the recognition that the credit brings: "Now we're who!" In the past, they were not allowed to sit in a circle with the men, and could not have taken the bus to the district capital on their own. Now they not only give their opinion to the men in the village, but go to the authorities without the men and complain. In the past they weren't allowed to step into a bank, but now the "mobile" bank in the village follows them. They are the proud owners of SMART cards as proof of participation in modern times. With the SMART card as a modern financial service technology, the MFI agents make deposits and withdrawals at the doorstep. The almost nationwide range of loans with which women can independently free themselves from poverty also constructs a new concept of citizenship: women have the right to a small loan, dutifully repay it and are therefore recognized as producers and consumers on the market.

However, the feminization of borrowing is a contradicting empowerment. From a Bourdieuian perspective, the women acquire symbolic and social capital with the loan, which causes irritations and breaks in the existing gender order and can trigger social change. If you look with Foucault, the small loans represent a neoliberal technique of rule. The women learn self-regulation and are integrated as self-responsible subjects, "disciplined debtors" and work-oriented poverty fighters.

Global finance industry and overheating

Mohammed Yunus called on large private banks to get into the small loan business and to redeem the "human right to credit". In return, he promised investors "a clear conscience" and the hope of bringing "poverty into the museum". The amalgamation of financial and moral returns is the strategic highlight of this sector.

Indian MFIs are restricted by law to lending and are not allowed to keep savings accounts. In the course of their expansion, they were therefore dependent on refinancing from commercial banks. They lent this debt capital to the women with considerable surcharges on interest and fees. Thanks to the high repayment rate by women, the good return prospects not only triggered a “gold rush” for MFIs in India, but also a fund boom among banks in the global financial markets. The first microfinance fund was set up at Dexia in Luxembourg in 1998, and there are now over a hundred worldwide. Their »microfinance vehicles« are also offered by savings banks and banks that call themselves ethical, such as the German GLS. Here, too, the addressees are women, whose social investment awareness is appealed to.

The fund market is not transparent. In addition to the non-profit funds operated by development organizations, NGOs, foundations, churches and the Reconstruction Loan Corporation - Oikocredit is the market leader here - there are many investment products that present themselves as "development funds". They play with the appearance of charity and profit neutrality - among them the "Deutsche Bank Microcredit Development Fund".

The microfinance funds profited from the global crisis of 2008, in which nomadic capital sought new investment opportunities while fleeing from the high-risk funds. The small loans were considered low-risk because of their broad diversification and the reliability of the »disciplined debtors«. Investments contributed to the excess liquidity of MFIs, the expansion of the microfinance industry and thus also to the inflation of a credit bubble. This glut of credit was comparable to the subprime mortgage loans in the United States given to low-income Latinas and African-Americans. Only the quantity of the deposited credits counted.

The financial industry secures its reproduction by skimming off values ​​that are generated in the villages and slums of the global south. Social, developmental and ethical motives are used to moralize the logic of returns.

For years, the benchmark for the success of microloans was the spectacular repayment rate of 95 to 99 percent. But how was that possible if the majority of borrowers did not use the loans for profit, but for consumption? The oversupply of credit enabled the women to deal confidently with repayment obligations. They took out several loans from several providers and also went to the local moneylender in order to be able to repay on time. With the microfinance agents' weekly interest-collecting behind them, they juggled a complex system of indebtedness and several formal and informal sources of money at the same time. However, behind the repayment rate hid a growing debt. The poor substituted low incomes with loans and inter-financed their social reproduction at a higher level of consumption.

In autumn 2010, however, the repayment rate collapsed. In the southern Indian state of Andhra Pradesh, which has the world's highest "penetration rate" with mobile banking, the bubble burst. Statistically, eight loans went into every poor household in the region. 82 percent of rural households were heavily indebted.More than 50 over-indebted women committed suicide. The MFIs ran into liquidity problems, investors "lost confidence" in the industry, and the price of SKS shares plummeted by 77 percent. A cycle of reproduction collapsed. There had been a similar crash in commercial microfinance in Bolivia.

There are also similarities with the subprime crisis in dealing with the crisis: national and foreign banks, including the US City Group, deployed a rescue package for the MFIs. The Andhra Pradesh government tried to limit the damage, but failed to effectively protect the borrowers from exploitation and over-indebtedness. The global financial industry fiercely resisted regulation announcements by the Indian state - the microfinance fund responsAbility Social Investments from Credit Suisse is leading the way. Further liberalization of the service sector, as provided for in the EU-India free trade agreement, will improve the penetration conditions for foreign financial groups and allow the development of new financial instruments.

Loans beyond the logic of realization

However, the crash started a broad debate in India: Saving and lending must be removed from the commercial context of the financial industry and embedded in social contracts. Only in this way can women control these instruments themselves. The income generated by the poor must not be siphoned off from outside and surrendered to the logic of accumulation in the financial market, but must remain in the local reproductive cycle. It is also crucial that women can save in order to at least partially protect themselves against life and reproductive risks.

Even in the heartland of the crisis, in Andhra Pradesh, there are crisis-free zones. And there where the economic empowerment of women is not based on loans, but on local biodiversity and food sovereignty. The NGO Deccan Development Society (DDS) uses and improves locally available resources and avoids dependence on the state and (financial) market. This leads to controversy in households: women usually harbor a healthy mistrust of all major investments in agriculture that require borrowing. Where men tend to be more in favor of drilling wells, they prefer to experiment with growing drought-resistant millet varieties.

The women's union SEWA, on the other hand, has always relied on lending, for example to free street vendors from the clutches of local loan sharks. However, SEWA knew that women need loans for consumption and social security at least as much as they do for their business. She declared saving to be the central empowerment mechanism and a prerequisite for borrowing. In 1975 she founded a bank owned by women. At the same time, she set up production cooperatives and her own insurance system - as a further needs-based reproductive pillar. SEWA does not work for profit and is not affected by the microfinance crisis. Microcredits are only a vehicle in a comprehensive social and financial security system that supports social reproduction beyond commercialization. Instead of »financial inclusion«, exclusion and protection from the logic of exploitation are the conditions for empowerment.



Bateman, Milford, 2010: Why doesn't microfinance work? The destructive rise of local neoliberalism, London / New York

Karim, Lamia, 2008: Demystifying Micro-Credit - The Grameen Bank, NGOs and Neoliberalism in Bangladesh, Oregon