Ananya Roy – Millenials and Microfinance

The start of the new millennium is marked by the emergence of a remarkable global conscience about poverty.  I have argued that this moment is characterized by the democratization of development – a broad ownership of, and participation in, poverty alleviation efforts – and by the democratization of capital – the attempt to stretch market forces to reach the world’s “bottom billion,” or the billion or so people living under conditions of extreme poverty.  Millennials and microfinance are prominent features in these types of democratization.  By millennials I mean a generation – your generation – which has come of age with a burning passion for poverty action.  And in such efforts, microfinance has emerged as a popular idea, even a panacea.  

I am no expert in microfinance.  My interest in microfinance has to do with the lively debates that are waging about its future. I see these debates as a microcosm of the Big Questions that currently face the world of international development, foreign aid, and poverty action.   In other words, the questions we ask of microfinance are windows onto Big Questions about capitalism, ethics, and power.  Here I list a set of questions about microfinance. I hope that as millennials you will grapple with them and find your own answers to them.

1. What are the potentials and limits of poverty action that depends on the provision of financial services?  In other words, is access to finance a necessary and sufficient condition for the alleviation of poverty?  Do financial services enable the poor access to other basic needs, such as housing, health care, clean water and sanitation, education?  Or do these basic needs require a more traditional welfare state that is able to provide an infrastructure of services and care for its citizens?

2. Most of the current models of microfinance eschew the role of the state.  But recent debates about predatory interest rates in microfinance have triggered discussion of the need for state regulation of microfinance. What do you think?  Is the global microfinance industry headed in the same direction as the US subprime mortgage market, i.e. toward a meltdown?  That crisis, many scholars have argued, was created by the deregulation of the financial industry.  Who or what, in your opinion, should regulate microfinance?  Or is self-regulation, via an industry code of ethics, sufficient?

3. Microfinance includes not only microcredit but also many other types of financial services.  Taking note of microfinance innovations in Bangladesh, I have argued that it is savings, rather than credit, which is the most crucial part of a microfinance program.  Savings, asset-building, and other types of microfinance bear resemblance to social protection programs.  These are a far cry from the popular image of microfinance as microloans to microentrepreneurs.  Which type of microfinance do you value – microfinance as social protection or microfinance as microentrepreneurship – and why?

4. Finally, the savings programs in Bangladesh are mainly compulsory programs.  Indeed, quite a bit of microfinance involves discipline and compulsion, be it loan collection or forced savings. How do you feel about this? After all, the dominant narrative of microfinance is about economic freedom.  Are the poor uniquely subjected to forms of discipline and compulsion and if so what does this say about poverty action and our role in it?

Ananya Roy
Professor, City and Regional Planning
Distinguished Chair in Global Poverty and Practice
Education Director, Blum Center for Developing Economies
University of California, Berkeley

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