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Micro Credit—The Hidden Agenda
It was when Muhammad Yunus won the Nobel Prize for Peace in 2006, that ‘Micro Credit’ hit the headlines of the media. Poverty alleviation became the buzzword. A wave of euphoria for micro credit swept the public mind. Micro Credit resembled the magical Aladin Lamp! It seemed, the darkness of poverty would disappear as soon as the lamp was lit. The Christian supremo, Pope Benedict XVI, sent a message to a conference at the Vatican blessing the micro-credit programme for promoting “a culture of solidarity inspired by evangelical values”. As reported in the Cathedral World News, the Pope in his message, delivered on Feburary 28, 2006 to a conference organised by the Pontifical Council for Justice and Peace, observed that accessibility to credit is often an indispensable prerequisite of economic development. To put it more clearly, the celebrities of world repute certified Micro Credit as an unique tool of poverty alleviation. With Micro Credit they drew a road-map of development which would lead the poor to ‘paradise’.
Now let’s go back by a few decades. ‘Garibi Hatao’ (Remove Poverty) was the popular political slogan raised on the eve of the 1971 parliamentary elections by Indira Gandhi, the former leader of the ruling Congress party, to garner political support of the rural and urban poor constituting the largest potential vote-bank. The slogan dealt with an issue which should not be judged in isolation of the contemporary economic events. All over the world ‘poverty alleviation’ was the key issue of the development theory since the 1970s. Robert Strange McNamara, the former US Secretary of Defence (1961-68) in charge of shaping the US war policy in Vietnam, later became the President of the World Bank and continued till 1981. He took up the policy measures on poverty alleviation during the 1970s.
Promoting Micro Credit
Over the next two decades Micro Credit grew fast. The United Nations Development Fund for Women identified Micro Credit as the key strategy to help poor women. The First International Micro Credit Summit was held in 1997 at the headquarters of the World Bank in Washington D.C. The World Bank, United States Agency for International Development (USAID), United Nations Development Programme (UNDP) and Citi Bank became the chief patrons who declared allocation of special fund for Micro Credit. Over the years the major commercial banks and the multinational corporations like Monsanto, Citi Group and others decided to sponsor Micro Credit. Hillary Clinton, the Senator and former US First Lady (who is now the Secretary of State in the Obama Administration in Washington), while attending the UN General Assembly’s Special Session on Women in the year 2000, pleaded strongly in support of Micro Credit.
She claimed that a scheme initiated two years back under her patronage served 20 million poorest people worldwide. In Micro Credit she discovered a “micro idea…. with vast potential. Whether we are talking about a rural area in South Asia or an inner city in the United States, Micro Credit is an invaluable tool in alleviating poverty, promoting self-sufficiency.” She recommended Micro Credit at the Fourth International Conference on Women held in Beijing in 1955. Queen Sophia of Spain highly commended Micro Credit.
Micro Credit —hand-in-hand with Capitalism
The proponents of Micro Credit tried to establish the theory that capitalism can work for the rich as well as for the poor. They introduced the micro-credit programme as something purely non-political but economic in nature and free from class bias. But can the economic measures be ever politics-class-neutral? If not, then, is the micro-credit programme, projected as an effective tool of poverty alleviation, an exception?
The threatening problem of unemployment marks the present scenario. The agriculture sector ceases to generate new job opportunities. Employment of workers in the manufacturing sector is cut down to a minimum to ensure more surpluses. The commodity market is facing recession. The service sector alone cannot absorb all who are refused employment elsewhere. When new investment opportunities in any of the three major sectors of the economy are woefully low, capital finds out its new ally in finance capital to utilise the accumulated surplus at its disposal.
Growth of Finance and Banking Capital
The recent phase of capitalism witnesses growth of finance and banking capital. Earlier the businesses of banks and other financial institutions were urban-centric and elite-biased. Of late they target the poor living in the remote hamlets. Lending money to them ensures higher repayment and lucrative return. The rural poor, comprising of the majority of the global population who have been exploited by the usurers, became the easy prey of the micro-credit operators. They are brought into the micro-credit net. The United Nations Conference on Trade and Development (UNCTAD) reported the following in 1998 on the eve of Tripartite Meeting on Micro Finance in Lyon, France:
The micro-credit phenomenon has revealed the existence of a huge potential market, profitable yet largely untapped: an estimated 500 million micro entrepreneurs and their families, until now largely excluded from a financial system…. These 500 million micro entrepreneurs represent a potential credit market of US $ 100 billion and even larger market for savings and insurance.
The hunt for profit has motivated the micro-credit operators to target the unemployed poor. Micro Credit, proudly advertised as a tool of poverty alleviation, is merely a lip-service to them. Micro Credit, to them, is a newly invented tool of making profit. They look upon it is as business. Micro-credit operators are money-lenders. Neither are they the ‘holy magi’ nor is the Micro Credit their ‘gift’.
Poverty—a Problem of the Individual!
No wonder that the media, owned and controlled by capital, refer to Micro Credit’s journey as a success story. The mainstream media reporting on the micro-credit programme, sounds laudatory. It creates a “feel good” factor in the mindset of the poor but the same ultimately proves to be a myth. As an anti-poverty programme, Micro Credit fits uniquely with the new liberal development strategy. Micro Credit may be explained as a neo-liberal development paradigm of alleviating poverty without challenging the existing economic system and state structure which manufacture poverty.
It explains poverty as a problem of the individual and shifts the responsibility of addressing it away from the state to dump it upon the debt-burdened shoulder of the feeble poor. Poverty should be addressed by the individual in his or her own capacity. The state is in no way concerned with it. Muhammed Yunus, the proponent of Micro Credit, wrote in his autobiography, “I believe that ‘government’, as we know it today, should pull out of most things except for law enforcement and justice, national defence and foreign policy, and let the private sector…. take over their other functions.” Rewarding Yunus with the Nobel Peace Prize in recognition of successful implementation of the micro-credit programme is certainly an act of endorsing the neo-liberal regime to execute its agenda of privatisation, liberalisation and globalisation.
Keeping Micro-Credit Programme Alive
Making credit available to the poor sounds commendable. But as a tool of fighting global poverty, Micro Credit should be judged by its effectiveness, not by it good intentions. The causes of poverty are deeply rooted in the capitalist system of economy. Extending the credit net without removing the causes of poverty will not improve the condition of the poor. Impoverishment, deprivation, malnutrition, disease, illiteracy, gender discrimination and unemployment need much more than mere money flow through Micro Credit. Poverty will remain there same as before to keep the programme alive if the country’s development plan relies on Micro Credit for removing poverty. Any significant change in the prevailing financial condition of the poor calls for structural change, state initiative, political mobilisation and initiation of a radically different development paradigm.
Micro Credit appears to be pro-poor in form but in content it is actually anti-poor to the core. The adverse clauses of the loan agreement are carefully kept hidden in a ‘sugar-coated’ loan package. The ‘ever-trusted’ media censors certain pertinent information in fear of full disclosure of the evils of Micro Credit. The penniless poor listens to no reason but gracefully accepts the loan offer to avail the ‘cash inflow’ and solve the present crisis temporarily. The taste of its bitterness becomes polpable only when the instalments fall due.
Miseries behind High Repayment Rate
The repayment rate of Micro Credit touches record high, nearly cent per cent. The record is proudly advertised by the micro-credit operators. By the high rate they claim to have achieved success. The micro-credit programmes are economically viable, they argue. As if the poor borrowers have all become successful entrepreneurs to earn income sufficient enough for repayment of their loan obligations. Behind the success story of high repayment rate another story, the story of Micro Credit being used as a tool to exploit the labour power of the poor, remains untold. The story tells the reasons behind the high rate.
The agents of staff of the micro-credit organisation arrive at the doorsteps of the borrowers, pretending to extend service to the poor clienteles. The purpose of their visit is, of course, different and not in the least poor-friendly. It makes their presence felt by the borrowers and remind them of the instalment schedule in advance. It is a rigorous attempt on the part of the micro-credit operators to ensure collection of the dues from the borrowers dot in time without fail. A higher recovery rate quickens turnover of capital and results in higher rate of profit to the micro-credit organisation. The borrows spend sleepless nights with the anxiety of earning cash sufficient enough to meet the instalment obligation. The claws and teeth of the micro-credit programme are unmasked in broad daylight.
The rich and affluent borrowers of nationlised commercial banks can dare to refuse repayment of loans taken for their profitable businesses. They have access to the corridors of power. They manage to get support from the higher echelons of the banks’ administration to reschedule their instalments with such terms and conditions which suit the profiteering motive of their businesses well. The half-fed, ill-clad borrowers are not politically empowered. They cannot manoeuvre support from the state even if they are in dire need to reschedule the micro-credit loan taken.
Micro-credit borrowers come from different walks of life. They are street hawkers, artisans, rickshaw or cart-pullers, weavers, blacksmiths, fishermen or women tailors, cobblers, milk-men or maid and others. Working from dawn to dusk they produce and earn as much as possible in order to meet the loan obligation. The repayment schedule casts a shadow upon the household activities of the borrowers. The spouse, the old parents and even the children of the borrower join hands to extend support to the borrower to speed up production. The siblings do all the domestic chores. They stop going to school. They forget their childhood. The pressure of duty forces them to grow older than their age. The borrowers do not engage paid labourers from outside the family.
The surplus thus created by utilising their own labour power is appropriated by the micro-credit operator in the name of interest included in the instalment dues. The big firms appoint managers to keep a watch on the work of the labourers and introduce incentive plans to raise their efficiency level but no such measures are to be adopted by the micro-credit-supported ventures. Here the labour power of the borrowers and dependents of their families are voluntarily engaged without any hired surveillance. Provisions of the Factory Act relating to safety and the health of the workers, restrictions of employment of women and children, payment of minimum wages, bonus, overtime wage, holidays are alien to them. The surplus created by exploiting the labour power of the borrowers and their family dependents by the worst primitive means is apportioned by the micro-credit operators in the name of interest included in the instalment.
A micro-credit borrower deprives her/his own self and her/his family members by rationing the consumption of her/his basic necessities to divert funds towards payment of the instalment. Sometimes they are forced to dispose of whatever little they own. They also work for extra hours to earn more. Thus is the real fact behind the ‘seemingly encouraging’ repayment rate.
Return of Capital
The process of converting raw materials into finished products passes through a series of distinct stages over a period of time, say, a few days or weeks or even months. It takes time for the borrowers-turned-entrepreneurs to procure the right kind of raw materials from the cheapest sources. The raw materials are usually stored for a few days before they are put into the process of production. Then comes the processing period. Marketing the finished goods and collecting cash from the buyers in case of credit sales involve a time gap. A minimum reasonable period is required to reap the fruits of investment, be it in agriculture, trading, manufacturing, infrastructure development or the service sector.
Again there are risks and uncertainties in business. Goods produced are not always sold and even if sold may not earn surplus. The income of a trader sharply falls in the lean season due to recession, drought, flood, political disturbances and other contingencies beyond the control of the borrower-turned-entrepreneur. But the micro-credit operators do not wait. They are ever-ready to recover instalments even before the loan amount is put in productive use by the borrowers. Instalments include interest. Interest is appropriation of surplus. In the micro-credit programme interest is charged in advance against surplus which is yet to be earned. Interest is normally defined as ‘return on capital’. But for advance appropriation of surplus by the creditor of Micro Credit interest may be redefined as ‘return of capital’ by the borrower. The poor borrower is deprived of utilising a portion of loan money bearing interest which is recovered by the micro-credit operator as instalments soon after the loan money is handed over to the borrower widens. The effective rate of interest exceeds the rate officially quoted. The agents or the staff of the micro-credit organisation visit the doorsteps of the micro-credit borrowers and listen to no excuses of the latter while insisting on repayment of instalments as per schedule.
Where do the micro-credit borrowers-turned-entrepreneurs sell their products? Naturally, in the market. Who rules the market? The big corporates and the multinational firms, under the guidance of the international trade bodies and financial institutions, namely, the WTO, IMF. The market goes global. Globalisation has opened the market. The lilliput-size entrepreneurs are completely at a loss while marketing their products and services in the competitive market. The big firms enjoy economies of large-scale production. Their aggressive marketing strategy simply drives the small entrepreneurs out of the global market.
Micro Credit may play a pivotal role in bringing about a favourable change in the financial position of the poor borrower. But the cases are few in number and cannot be generalised. For the majority of the borrowers the inflow of cash from sale proceeds falls short of the amount required to be paid for instalment of loan repayment. They undertake distress sale of disposable assets, if any, owned by their family. Finally the borrowers are left with only one option: to borrow afresh to pay off the outstanding loan in full settlement. The borrower-turned-entrepreneur becomes a borrower again. The borrower is put into the Micro Credit debt-trap.
Silent appropriation of surplus
Micro Credit has been intimately linked to ‘poverty alleviation’. But does this convey the truth? Its impacts are far from uplifting the poorest sections of the society. Micro Credit finds its way as another form of silently appropriating the surplus created by the labour power of the poor borrowers. It binds the poor with invisible ropes of exploitation making them sink even lower in the social strata. Micro Credit is not a saviour of the poor. On the contrary, the state of impoverishment does not improve and sometimes it even worsens. Now it is time for us to think: shall we be still hoodwinked by the praises and chants glorifying Micro Credit?