Europe: Beware of banks that provide micro-loans to the poor


(WOMENSENEWS) – How are bankers providing relief?

With loans of course.

Lending to weak, vulnerable and very poor women is the rallying cry of those who argue that microcredit empowers women.

And that’s why the Global Microcredit Summit begins today in Valladolid, Spain. Over the next four days, micro-lenders around the world will join some of the world’s biggest banks in shouting debt: “Loans will set you free”.

Or will they?

A quick reminder: Microcredit became famous in the aftermath of the famine in Bangladesh in the 1970s, when Mohammed Yunis started lending small amounts to women in hard-to-reach rural areas.

Because these women had no physical collateral for the loans, he organized them into “lending circles”, so that all the women in a group were responsible for each other’s debts.

This arrangement explains the extraordinarily high repayment rates of micro-loans: if a member of a lending circle falls ill or suffers from any other circumstance that interferes with his ability to repay, other members must step in to make his payments or risk being refused loans in the future.

Enthusiasm for microcredit has swept through the international development community like wildfire.

Generalized rejoicing

Here, many rejoiced, it was a way to encourage work and unleash the long-stifled entrepreneurial spirit of the world’s poorest people. Millions of women around the world have added work in handicraft production, sewing, consumer electronics assembly, street vending or livestock care to their already busy schedules to go fetching drinking water, finding firewood, tending crops and preparing food.

No more work? Yes.

Poverty reduction? No.

Between 1981 and 2005, the only sustained decline in poverty occurred in China, the World Bank told us in a 2008 report. And China does not stand out as a magnet for microloans.

In the rest of South Asia, the poverty rate (the share of the population living on $1.25 a day or less) has fallen. But due to population growth, the same absolute number of people (about 600 million) lived in poverty in 2005 as in 1981. In sub-Saharan Africa, the poverty rate has not changed and the total number of poor has almost doubled. In Latin America, the Middle East and North Africa, the poverty rate has fallen, according to the World Bank report, “but not enough to reduce the total number of poor”.

Meanwhile, in the rush to celebrate microcredit, few wondered why so many of them were so poor.

If they had been the least bit curious, they would have discovered a host of profound institutional changes contributing to the increase in mass poverty among rural women. Not the least of these were the demands imposed on poor nations by the leaders of the World Bank and the International Monetary Fund.

Basically, the world’s poorest nations were mired in debt.

World Bank and IMF take matters into their own hands

Even though these countries often repaid the principal of these debts, they still owed millions in interest. And the banks wouldn’t let them off the hook. The World Bank and IMF stepped in with new loans that repaid the banks. In return, borrowing countries agreed to “structural adjustment programs” that cut essential public services.

In 1998, the Washington-based Institute for Policy Studies reported that virtually all developing countries – particularly in Latin America and Africa, and increasingly in the transition countries of Eastern and Central Europe – had implemented or were in the process of implementing austerity programmes.

This meant that poor countries cut public sector (government) spending on education, clean water, public transport, health care and literacy. As public programs that helped families have been eliminated, the pressures on women have increased.

The worsening of poverty triggered mass migrations, often of men, out of the countryside to towns and villages where there might be an opportunity for paid work. This left the women to provide for the daily needs of their families.

Enter micro-lenders.

Loans to destitute and desperate women – often at rates above 30%, 40% and even 50% – responsible for feeding, clothing and educating themselves, their children and dependent elderly people, have replaced the social support to poor families that had previously come from governments.

cause the problem

Structural adjustment, another way of saying austerity, played a huge role in creating the situation that microcredit claimed it could solve.

Today, microlenders will come together with some of Europe’s biggest banks to celebrate microcredit successes.

Micro-lenders, like banks that are ‘too big to fail’, are bound to present themselves as saviors this week; and may even start promoting their products more aggressively in Portugal, Italy, Greece and Spain, where poverty is rising as these countries react to their high debt levels.

Stating that austerity is the path to economic freedom, the bankers will no doubt urge European debtor nations to “make sacrifices”, “reduce public spending”, “get public pensions and salaries under control” and “cut unnecessary programs”.

They will say (as they said to Greece), “in exchange for the loans you need to stay afloat, you better get your finances in order.”

Guess what will happen?

The same thing, but this time in Europe.

Poverty and economic distress will intensify. More women and children will go hungry because governments will cut programs that help feed poor families.

Girls will drop out of school to care for their younger siblings, as mothers will have two or three jobs, or even migrate to distant cities to earn a few euros. Cash-strapped rural families will not be able to maintain their ancestral homes where they have cultivated small plots of land for centuries.

The policies proposed by the banks sponsoring the microcredit party in Valladolid this week echo the structural adjustment policies of the World Bank and the International Monetary Fund.

Women of the world pay attention. Austerity does not feed families, pay rent or buy oil.

Whether lending to poor women – as in the case of microcredit – or lending to nation states – as in the case of the deepening macroeconomic crisis in Europe – banks are not the solution, they are the problem.

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Susan F. Feiner is Professor of Economics and Professor of Women’s and Gender Studies at the University of Southern Maine in Portland. With Drucilla Baker, she is the author of the award-winning book “Liberating Economics: Feminist Perspectives on Families, Work and Globalization”. She thanks the Office of International Development Cooperation of the University of Valladolid for the opportunity to speak about these pressing global issues.

For more information:

Global Microcredit Summit 2011:

Structural adjustment, a major cause of poverty:


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