It’s easy to understand the appeal of microcredit. Poor women from the Global South use loans as small as $20 to start businesses and lift themselves from poverty. The creditors make a profit when the loans are repaid. Win-win.
What do they say about things that look too good to be true?
A whopping 90 to 99 percent of these loans are paid back with interest, another shining indicator of microcredit’s success. But there is an ugly side to ensuring repayment, where poor women are made to police one another and punish defaulters with collective acts of aggression.
In her study of Grameen Bank microcredit programs in rural Bangladesh,* Leila Karim finds that the focus on the 98 percent loan recovery rate hides how beneficiaries are co-opted into “a political economy of shame.”
Microcredit works by appropriating the only social capital poor women possess — their virtue and family honor. Among the Ifugao women in the northern Philippines,** microcredit beneficiaries are grouped into cohorts of five to fifteen members. They are given clear instructions: “You are all responsible for the loan and have to make sure that no one defaults.”
This lays the foundation of a very effective surveillance system, wherein poor women monitor other poor women. And the poorest women, the ones who need loans the most, are evicted from the group to minimize the risk of default.
Given the surprising lack of entrepreneurial or job skills training in microcredit schemes, it’s not unusual for a member to default on her loan. This is when things get even uglier, as the other women in the cohort are forced to extract payment.
In Bangladesh, for example, women march off together to publicly scold a member who falls behind on her loan payments. The cohort would also scold her husband in public. If she could not produce the money, the other women in her cohort would take anything that could be sold for loan payments — her cows and chicks, grain from her family’s pantry, uprooted trees and plants from her yard. Even her gold nose-ring, an important symbol of marital status for rural women.
When even these repossessions were not enough to repay the loan, the cohort could instigate the ultimate dishonor of ghar bhanga (literally, “house-breaking”), where the defaulting member’s house is sold off to pay for the microloan.
The institution of microcredit has thus forged social relations based on shared debt, undermining previous ones based on shared labor and trust. Women informed on potential defaulters or members who used the capital for unauthorized purposes, such as buying food. Women who defaulted on loans have been taken to police stations and locked with criminals until their families made payments. The resulting shame from all these actions cause wives to lose their honor and virtue, and have led husbands to file for divorce.
Small wonder then that women go to great lengths to make their loan payments. Ifugao women reported an increase in their workhours, taking on additional income activities selling homemade foodstuffs. Other women have reported cutting back on family expenses like food and children’s school items.
In emergencies, women who have diverted loans to subsistence purposes have turned to moneylenders. Women who took on microloans to achieve self-sufficiency instead found themselves even more baon sa utang.
These difficulties illustrate a failure that microcredit programs share with other top-down antipoverty strategies. Aid workers from Manila dictate the development programs’ strong emphasis on microcredit and entrepreneurship, instead of the healthcare and education programs that Ifugao representatives have requested. Instead of addressing the roots of poverty among rural and indigenous women, microcredit schemes have generated credit-related strife.
Also among the Ifugaos, microcredit programs are undermining existing local arrangements. Governed by the principle of innabuyog (“sharing the good”), Ifugao women have long organized themselves into reciprocal labor collectives to cultivate rice and raise livestock. These collective also provide members with short-term loans when needed. These organic and vibrant arrangements are being supplanted with the homogenous, competing entrepreneurial projects championed by microcreditors.
I do not doubt that individual microcredit workers mean well, and that people like Prof. Mohammed Yunus have good intentions. But microcredit has been turned into a panacea, the star of antipoverty programs around the world, to the exclusion of more responsive strategies. That’s very problematic.
The supposed success of “compassionate capitalism” strategies obscures the enormous social costs behind statistics such as amazing loan repayment rates. Social costs that are ultimately borne by women who are already marginalized by their socioeconomic and indigenous status.
* Data from Bangladesh is from Lamia Karim, “Demystifying Credit: The Grameen Bank, NGOs, and Neoliberalism in Bangladesh,” Cultural Dynamics, Vol. 20, No. 1, 5-29 (2008)
** Data for the Philippines are from Lynn B. Milgram, “Operationalizing microfinance: Women and craftwork in Ifugao, Upland Philippines,” Human Organization, Vol. 60, No. 3 (2001)