In Chapter 11 ‘Interventions to promote livelihoods’, Case Study 4 considered how micro-credit can be used to promote livelihoods amongst low income women in the USA. Micro-credit has been regarded as a successful mechanism for income generation and poverty alleviation, particularly for women. However, there is also much debate about it and its supposed success has come under some criticism.
In Activity 10, you can listen to a podcast of a programme, originally broadcast on the BBC World Service in 2011, which discussed some of the downsides of micro-credit schemes. Search for recent information about micro-credit on the internet and to compare what you find with that podcast.
Listen to the podcast on micro-credit. While listening to the podcast make notes on the arguments for and against micro-credit.
Transcript: Micro-credit (19 minutes)
The podcast paints a rather critical picture of micro-credit or micro-finance (the former tends to refer to loans while the latter may also include services such as insurance; but the terms are often used interchangeably).
On the plus side, the idea of micro-credit is to enable low income people to have money to invest in productive activity. This has worked in many cases (which have been documented by the World Micro-credit Summits that have taken place over many years).
On the down side, the podcast suggests that micro-credit is subject to the same phenomenon as sub-prime mortgages: borrowers are persuaded to take out too many loans by predatory lenders and subsequently fall into debt, unable to repay their loans. In this case, debt can have life-ending consequences.
The story is of course more complex. Poor people have little to withstand shocks in their lives and as soon as one happens through natural or human causes, they fall back on any resources they have to pay for food, clothing, education, etc. Available resources will of course include loans they have received. In addition, it is quite well known from other forms of credit provided to low income people, that credit is used for consumption as well as investment because people have so little to start with. This is the case as much in developed countries as in developing ones.
So the conclusion of the podcast is that micro-credit can contribute to poverty reduction and livelihood promotion but is not the panacea originally espoused. One of the studies cited in the podcast suggests that micro-credit does not lead to women’s empowerment, improved child health or more education in the household. However, other studies have shown how micro-credit has enabled women to form solidary groups, i.e. the benefit for some has not so much been in business but in the reduction of women’s isolation.
Thinking about micro-credit institutionally, the challenge of running such schemes on a not-for-profit basis comes through in the podcast, and is one of the reasons that the for-profit private sector has become involved. The latter is likely to make the terms and conditions of lending more stringent – in principle (although the sub-prime crisis of 2008 is not strong evidence for this!)
When you have listened to the podcast, read ‘Indian budget projects economic growth’, from the BBC website. What are your observations about this statement from the Finance Minister in the light of the podcast you have listened to?
Comparing your reflections on the micro-credit podcast with ‘Indian budget projects economic growth’ will also put them in the wider setting of the Indian national economy. India, like China, has been dubbed a ‘rising power’, with a rapidly growing economy. However, it still has many challenges in terms of reducing poverty which is not declining as fast in China (which accounted for most of the world decline in poverty in 2011). From your reading, you can pick up the contrasts and contradictions of economic growth and attempts to promote livelihoods through micro-credit (which the Finance Minister was planning to bail out).