EJ @ stanford
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Microfinance & the Neoliberal Zeitgeist: How ‘Impact-Driven’ Global Development Commodifies Female Empowerment in Rural India

By Ivy Manna

The beauty of Indian artisan craftsmanship: traditional Bengali Patachitra paintings, often depicting mythological narratives and folktales (Picture Credits: Ivy Manna)

Business loans. Savings accounts. Risk insurance. These basic financial services seem mundane, commonplace, and even unremarkable to many — perhaps something one might see plastered on promotional pamphlets at their local banking branch, that would not merit even a second glance. Rarely does anyone call loans, savings accounts, and insurance the symbolic beacon of hope in their world: their ‘golden ticket’ to accessing opportunity, their stake-hold in society, the lifeline for their families. It seems preposterous to think that these basic financial services are beyond the reach of anyone in today’s society — but yet, that remains the case for 1.7 billion people living worldwide today.

Nowhere is this disparity in accessibility to financial services, known as financial inclusion, more apparent than in the country of India. Despite meteoric innovation in medical-technological sectors in the urban metropolises of Mumbai and Bangalore, this economic growth has failed to include the rural communities that constitute the vast majority of India, widening urban-rural socio-economic disparities. This growing inequality can be attributed to the deficiency in financial services provision to low-income households in rural India, leaving many unable to accumulate savings, grow businesses, smoothen consumption, or insure against emergencies. These ‘unbankable’ individuals, unreachable by India’s institutional financial ecosystem, are eighty-percent women, owing to societal conventions that ensure that women do not have financial independence in India. The concurrent necessity for female empowerment and financial inclusion in rural India is indisputable, and institutions have sought solutions to bring about the two (Banerjee et al., 2015).

Enter microfinance. It seemed like such a perfect idea — and indeed, it was hailed as exactly that. The vehicle of microfinance, consisting of microcredit for loans, microsavings for emergency protection, and microinsurance for risk mitigation, strives to improve accessibility to crucial financial services in rural India, hoping to equalise economic opportunity in one of the world’s fastest growing economies. Microfinance’s formal conception by Mohammed Yunus in 1983, who went on to win the Nobel Peace Prize for his work founding the Grameen Bank in Bangladesh, started a worldwide revolution that transformed access to financial services for the working poor, holding particular promise for women. The outstanding results of the Grameen Bank’s initial all-women microfinance lending, with full repayments and explosive return-on-investment, catalysed the heralding of microfinance as the ‘magic bullet’ for female empowerment in the developing world — especially in traditionally patriarchal countries like India. World leaders, academics, and charity workers hypothesised that microfinance’s expanded access to financial products for women, such as savings accounts and risk-mitigating insurance, would shift the balance of power in India towards women, allowing greater autonomy and independence, thereby increasing their empowerment (Kabeer, 2005).

Yet, microfinance has not been the ‘magic bullet’ for female empowerment that it was purported to be in India — there have been failed businesses, overwhelming and unsustainable microcredit loans, unscrupulous unregulated lenders, and more. The use of aggressive client recruiting by both government-led and corporate-led initiatives, extortionate interest rates for ‘mega-profitability’, and excessive ‘self-help’ neoliberalism advanced by the microfinance model has led to accusations of the commodification of female empowerment, using it as camouflage for unscrupulous market-oriented ends (Ajwani-Ramchandani, 2017). Despite these criticisms, however, some argue that the untapped potential of microfinance to cultivate female empowerment has made it one of the most contentious and important conversations in global development today.

The bountiful artisan production native to West Bengal: terra-cotta horses from Bankura, West Bengal (Picture Credits: Ivy Manna)

Perhaps the most significant point of contention has been around the purported commodification of female empowerment by government-led and corporate-led microfinance initiatives, and the impact that this has had, in conjunction with our increasingly neoliberal capitalist socio-economic environment worldwide. Within capitalist economic systems, commodification refers to the transformation of goods, services, ideas — and rural India’s women — into unintended objects of free-market trade, and thus have been ‘corrupted by commerce’ (Ashta et al., 2014). Proponents claim that the neoliberal incentives arising from commodifying female empowerment motivates providers to ‘stay competitive’, while critics condemn it as neo-colonialism that ‘prices’ rural India’s women. The truth of this commodification is equivocal, and yet central to the global conversation.

Similar to welfare payments, carbon taxes, and traffic roundabouts, it is not microfinance itself that is ‘good’ or ‘bad’ for female empowerment, but the implementation and execution of microfinance towards these ends that determines overall efficacy. Within rural India, the interaction of key stakeholders — namely government, microfinance providers, and female recipients — determines the success of microfinance initiatives in cultivating female empowerment, and the degree to which commodification occurs. According much of the theoretical literature, the harmonisation of local government, microfinance providers, and female recipients is key for microfinance’s success in rural India, as such initiatives do not exist within vacuums, but within the contextualisation of local communities — making responsiveness to stakeholder needs imperative. Within this framework, the institutionalisation of microfinance providers in local communities, with accountability oversight by government, merges free-market efficiency gains with the community-oriented approach for female recipients. This framework may lead to the commodification of female empowerment in rural India, but this relationship is one of mutual symbiosis.

Despite this theoretical consensus, worrying divergence exists between this idealised framework and real-life microfinance initiatives in rural India. Microfinance’s rise to global development fame rests upon how the individualistic, self-sufficient, and market-affirming framework of microfinance’s model resonated with the concurrent global turn to economic neoliberalism, in this time of Reaganism and Thatcherism. Driving quantifiable ‘impact’ in such neoliberal times, with myriad metrics setting out women ‘empowered, villages ‘revitalised’, and communities ‘saved’, become all-important. Today’s microfinance initiatives and frameworks are directly contrived from the outstanding success of Mohammed Yunus’ Grameen Bank, with sparse implementation innovation and uniform regulation across rural India. Even today, microfinance is a product of the time it was created — and that must be changed to create long-term coherent and sustainable community-oriented policies.

Needless to say, I’ve spent quite some time thinking about the link — or perhaps the lack thereof — between microfinance and female empowerment. Academic consensus, on-the-ground ethnographic research, economic and psychological theory, and my own experiences as an Indian-American have led me to develop multidimensional and complex proposed policy solutions are three-pronged, and broadly argue for devolving microfinance decision-making power towards the individual villages, establishing anonymous ‘whistle-blower’ channels, and creating uniform and nuanced regulation. It must be said that these proposed policy solutions are just the starting point for the wealth of knowledge about this topic that has, and will be accumulated about microfinance and female empowerment in rural India. But, the conversation has to start somewhere — and it begins in earnest with these three-pronged policies.

Policy Proposal #1: Devolving Decision-Making Power

Microfinance in rural India has often been prescriptive: initiatives have been dictated top-down, by faraway providers and distant governments. Failing to communicate with microfinance recipients more broadly is especially devastating for the multidimensional empowerment of female recipients in rural India — in traditionally patriarchal communities, opportunities for women to exercise their voice and social power are sorely amiss, and many microfinance programs fail to address this pressing need. Decision-making power is centralised in the hands of providers in much of rural India, with little input from female recipients, hindering female empowerment and making microfinance less responsive to community needs.

The power of equitable finance is transformative, enabling the development of artistry without economic worries: a craftswoman painting traditional pottery, using all-natural dyes at Paschimbaga Hastashilpa Mela, which is the West Bengal State Handicrafts Fair (Picture Credits: Ivy Manna)

To help mitigate this, it is necessary to devolve decision-making power away from the providers towards the individual local village governments in rural India. Involving local governments as key stakeholders is controversial amongst much the global development community, who often — wrongly — view government officials uniformly as unscrupulous middlemen, taking advantage of microfinance providers, due to their greater information about the local area and population.

This absolutist position on government intervention is overly simplistic. While it is unwise to assume that all local government in rural India is benevolent, it is perhaps even more unwise to ignore such an influential stakeholder in the microfinance conversation. For female empowerment, enfranchised women in the villages in rural India can hold local government accountable at the ballot box, and are likely to be able to create communication channels with local government with greater ease, than with faraway providers. Creating microfinance provider ‘outposts’ in every village where the providers operate, enables greater local government oversight, increasing accountability for the female recipients of microfinance.

Policy Proposal #2: Establishing ‘Whistle-Blower’ Channels

Female empowerment in rural India does not exist in a vacuum, but within the context of pervasive gender inequity and patriarchy. These environments inherently disenfranchise women of their endowed right to independence and freedom, through psychological societal oppression (Vlassoff, 2014). As such, if microfinance initiatives are not equitably carried out for the female recipients, it may not be so straightforward for the female recipients to seek redress: societal forces and fear of retribution by powerful local figures with vested interest in the continuation of the microfinance programs as is, can prevent the reporting of unethical malpractices.

Clearly, the solution involves the gradual, yet sustained, dismantling of these societal conventions suppressing the voices of women in rural India, The most concrete way to do this is through creating anonymous ‘whistle-blower’ channels for female recipients to seek support, find redress and lodge formal complaints against microfinance entities.

This is conducive to female empowerment, as if women can escalate confidential concerns without fear of reprisal, then they are more likely to be less risk-averse in consumption, take community positions of social power, and possess increased self-agency — increasing economic, social, and psychological empowerment respectively.

Policy Proposal #3: Uniform and Nuanced Regulation

So far in the policy reform proposals, we have suggested ways to modify existing practices to make them more equitable. However, a key part of the reform conversation that has been neglected is uniform and nuanced government regulation — such regulation would work to support ‘recipient rights’ like equitable repayment schemes and informational access. It is a necessary part of policy reform, but perhaps the most contentious one.

The diversity of craftsmanship made using sustainable microfinance is stunning: a colourful array of traditional handmade amulets and necklaces, displayed at the aforementioned Paschimbaga Hastashilpa Mela (Picture Credits: Ivy Manna)

Much of the regulation that has occurred for microfinance in rural India has been reactive, not proactive. In the wake of microfinance catastrophes, such as the aforementioned Andhra Pradesh crisis of 2010, governments have rushed to pass legislation so that ‘this never happens again’ — but they fail to proactively plan for how the next crisis may occur (Pimpale, 2012). Moreover, inconsistent regulation amongst rural India means that corporations can escape unfavourable legal obligations, by basing business strategy off favourable policy, not social need.

It is not possible to suggest what precisely these policies might be — such recommendations require case-by-case analysis of each village and town in rural India, by individualised planning commissions. However, regulations like mandatory financial reporting to increase accountability, using local credit bureaus to verify the creditworthiness of female recipients so to not overwhelm them with unsustainable debt, and ‘caps’ on disproportionate interest rates on microcredit loans to prevent usury, are well-researched starting points for local governments to investigate.

Microfinance is ubiquitous. It truly is the global development idea that never quite disappears: something about it has captured the imagination of academics, development agencies, governments, celebrities, and the general public. That something is not that mysterious at all: the theoretically elegant ‘one-size-fits-all’ framework it presents to empowering women and alleviating poverty continues to resonate deeply with the neoliberal socio-economic global environment today (Morduch, 2000). Perhaps, the global conversation can agree on this synthesis of microfinance — but the facts of the microfinance movement was never the issue necessarily: it was what to do with this information moving forward.

The world looks upon rural India as a ‘microfinance incubator’ — the vast majority of academic studies, innovative ‘solutions’, and books are about the success or failure of microfinance in India. Rural India seems like the perfect ‘before’ environment for investigating whether the introduction of microfinance improves female empowerment, and the extent to whether this commodifies female empowerment — pervasive gender inequity throughout female community living exists, from education to healthcare to financial inclusion.

Microfinance in rural India today is broken: there exists overwhelming unsustainable debt for recipients, policy agendas are formed without community input, rent-seeking norms govern decision-making instead of societal need, and fundamental unaccountability exists for microfinance providers. Creating coherent and sustainable community-oriented policy to ‘fix’ microfinance and female empowerment in rural India today is not straightforward. Despite this difficulty in formulating equitable solutions, it is necessary to correct these financial disparities for rural India’s women — to empower them in their own eyes, not according to far-away academics.

For the women of rural India, microfinance is not just experimental economics, but how they feed their families, send their children to school, and invest in their communities. We must not neglect to humanise microfinance and the impacts of it: if we fail to do so, global development as a whole fails to understand and help those who need it.

Works Cited

Ajwani-Ramchandani, R. (2017). The Role of Microfinance in Women’s Empowerment: A Comparative Study of Rural & Urban Groups in India (1st ed.). Emerald Publishing Limited.

Ashta, A., Couchoro, M., & Musa, A. (2014). Dialectic evolution through the social innovation process: from microcredit to microfinance. Journal Of Innovation And Entrepreneurship, 3(1), 4. https://doi.org/10.1186/2192-5372-3-4

Banerjee, A., Duflo, E., Glennerster, R., & Kinnan, C. (2015). The Miracle of Microfinance? Evidence from a Randomized Evaluation. American Economic Journal: Applied Economics, 7(1), 22–53. https://doi.org/10.1257/app.20130533

Kabeer, N. (2005). Is Microfinance a ‘Magic Bullet’ for Women’s Empowerment?: Analysis of Findings from South Asia. Economic And Political Weekly, 40 (44–45). Retrieved 25 May 2021.

Morduch, J. (2000). The Microfinance Schism. World Development, 28(4), 617–629. https://doi.org/10.1016/s0305-750x(99)00151-5

Pimpale, V. (2012). An Introductory Overview of Microfinance in India: An Enquiry into Future Prospects. International Journal Of Marketing, Financial Services & Management Research, 1(9). Retrieved 1 May 2021.

Vlassoff, C. (2014). Gender Equality and Inequality in India: Blessed With a Son (1st ed.). Palgrave MacMillan.

Ivy Manna is a second-year undergraduate at Stanford University, studying economics, cognitive psychology, and data science. She is passionate about the intersections of equitable finance and financial empowerment with human rights, environmental justice, and corporate governance. Ivy’s intellectual pursuits have led her to research collaborations at the Stanford Environmental Justice and Human Rights Lab, the Stanford Graduate School of Business, and the Institute of Economic Affairs. You can contact her at ivymanna@stanford.edu, or @ivydmanna on Twitter.

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