How Microfinance Financializes Women

Microfinance has become a salient sector for poverty reduction in the developing world since its inception in the 1980s. By recruiting women into a group and making this entity a contract for continuous credit, microfinance includes many people who are beyond the reach of the formal bank sector due to a lack of formal guarantees for financial services. The group meets regularly to pay the debt and women supervise each other in handing in the money each time. This model provides loans at a rate higher than the formal bank but lower than the informal lender, making it workable as a business, as well as seemingly inclusive. Furthermore, it claims to empower women since it provides credit directly to women, making them protagonists in that respect. The United Nations advocates for this model. The inventor of the model, Muhammad Yunus, was awarded the Nobel Peace Prize in 2006. Nowadays, the worldwide industry has grown to be valued at $200 billion. It is also estimated that it will reach a size of $506 billion by 2030.¹

As an industry prominent in the development sector, microfinance has always been controversial. In the context of India, where the industry reaches sixty million people, microfinance is justified by the central bank for its “financial inclusion.” However, the industry is also believed to apply coercion toward those who are unable to pay the debt, leading to peasant suicides. Smitha Radhakrishnan’s Making Women Pay: Microfinance in Urban India is a recent investigation of the industry through the lens of gender. Even though this work is not the first effort to do so, it is specifically devoted to the gender focus, displaying some of the deeper dynamics that make microfinance possible.

At the beginning of Making Women Pay, Radhakrishnan makes a clear statement that her focus is not whether microfinance benefits people’s material lives or not. Rather, the key is to investigate the process of financialization of poverty. “Financializing poverty” is a term used by Sohini Kar to reveal another dimension of the “financial inclusion” advocated by politicians and the business community. Kar highlights the work done by grassroots workers and consumers to make the enterprise suitable for financial calculation.² Radhakrishnan bases her study on this premise and explores the dynamics in which are entangled these frontline “workers.” The other claim the book provides is that microfinance is an explicitly extractive industry. Radhakrishnan argues that the sector orients toward a “feminist commodity chain,” where “value is extracted from the bottom-up, fueled by a feminine base of labor and the consumption of financial products that are used to make ends meet within households.”³ For the “normal value chain,” as understood by mainstream economics, inputs produce value by combining labor and the means of production, and consumption realizes the benefit. Contrary to this “normal” value chain, microfinance is a reverse value chain, where the consumption part (women gaining credits and repaying them) generates value due to the gap in interest rates; and, after that, the input (the formal banking sector that invests in the microfinance industry)—always occupied by male investors—benefits and expands the industry.

The first several chapters investigate the formation and routine working of the microfinance industry. The first chapter traces the formation of the microfinance industry in India. The state and central bank play an important role in promoting microfinance as the method for “financial inclusion.” The second surveys conditions among the employees of the microfinance industry. Radhakrishnan found that, ironically, even though the industry claims to empower their clients and regards “working mothers” as ideal womanhood, these companies do not apply this rule to their own employees. The women workers in the industry find it hard to balance work and motherhood. They are stuck at the bottom of the company’s structure and only some unmarried female employees can get a promotion. The situation for women is no different here. The following chapter describes the process of building ties between frontline employees and their clients. On the one hand, companies are cautious about these relationships and forbid romantic love. On the other hand, employees have to cultivate social ties to maintain the business. Sometimes, frontline workers help cover the default from the official record by lending clients extra credit from their own salaries. This allows the financial process to continue, while also keeping clients in debt.

The second half of the book is the most innovative one, discussing the deeper transformation brought by the daily work of microfinance. The fourth chapter reveals the social relations among women within microfinance. Women have to organize a group themselves before accessing the microfinance company and the credit. The organizing itself is unpaid work always burdening women. The work needed to be done is a long list, including “relational work but extends beyond it to include decision-making and the management of relationships of power between and among neighbors, decisions about what kinds of debt to take on and for what purpose, as well as the consistent work of showing up for meetings and training, building relationships with microfinance company, NGO, or self-help group personnel, and coming up with creative strategies to repay in slim times.”⁴

This process, which is beyond the consideration of the industry, involves asymmetric relations among these women. Radhakrishnan conducted interviews separately with members in several groups. The result is that in each group there is always a relatively well-off woman with a broad social network. Most of the time, this member recruits others for the microfinance group. Being leaders in the local community does require them to devote more time to the group, but also benefits them, as they can act as financial brokers to lend their credit from microfinance to other people who cannot meet the threshold for lending. In this way, they create a new rent gap between the interest rate provided by the microfinance and their own. During Radhakrishnan’s survey, she found that one woman she interviewed, who had no need for credit, was “forced” by the leader to participate in the group and, thereafter, the debt relation. The leader made this arrangement to comply with the company stipulation that one of the five-member group must live in a rented home. Ironically, this arrangement is similar to “a health insurance pool that mixes high-risk and low-risk clients.”⁵ The work of making this stable financial mixture is not done by financiers, but by women themselves. The evidence reveals that, instead of tempering the preexisting inequality in class and caste, the daily working of microfinance invokes and reinforces the difference among women.

The fifth chapter highlights a social empowerment program provided by the microfinance industry to instill an entrepreneurial spirit in their clients, trying to transform them into the ideal “working mothers.” To make this convincing, stories are needed. Throughout the book, Radhakrishnan constantly reminds readers that microfinance companies always extract success stories from their clients. This process improves the reputation of the financial institutions. However, these institutions always produce “decontextualized success stories.” Not only are these successful women well-off in relation to their peers (often relatively educated and making a stable living), but also they participate in multiple financial activities. Here also lies another contradictory dimension. Although women unite as a group to get credit, educational programs emphasize individual responsibility and entrepreneurship. Microfinance never aims at transforming gender relations; therefore it is often presumed that once the women get rich (which means receive cash directly), they can get rid of the influence from their men and family.

From the side of clients, during her participation in the training program, Radhakrishnan found that most women do not accept trainers’ arguments, sometimes even when they initially show “outward appreciation and enjoyment.” In one case, one of the group members had received a large order to embroider four thousand burkhas. That member needed more people to help her complete the deal. Though some of the members were tailors, they did not take the order. The trainer thought these women lost interest because of a lack of confidence in themselves, and that shyness might constitute a cause. Nevertheless, Radhakrishnan talked with these members and found that the main issue was low profit.⁶ The obstacle for entrepreneurship education is that these abstract concepts do not fit the local situation.

Most women do not want to be entrepreneurs, but formal workers with stable incomes. It is a desire that can hardly be fulfilled when “80 to 90 percent of India’s employment continues to be in the informal sector, and that half of the employment in even the formal sector is informal.”⁷ When women have no access to formal work, what they want are specific directions, including what to do, which specific commodity should be produced, how to organize the production, and so on. Strangely, the microfinance industry does not aim to transform the credit group into a production unit, and extends credit merely for commercial purposes. An email received from Radhakrishnan confirms that the industry just wants to earn profits, instead of helping build a stable, productive environment. For them, the profit in the form of direct cash is the most valuable thing. It is a manifestation of the financialization process.

There is an outstanding theoretical weakness to the book. Its merit is Radhakrishnan’s insistence that the impact of microfinance should not be just evaluated through quantitative material indicators; it is also crucial to view microfinance as a political process in which social relations have been restructured. This is especially true when the advocates of the microfinance industry themselves argue that the enterprise empowers their employees and customers. However, Radhakrishnan does not provide a sufficient explanation as to why commercial microfinance is extractive. It seems difficult to tell the exact political-economic difference from other normal finance practices apart from the rent gap. Neither does the concept of a “feminist commodity chain” explain what is so specific in the gendered practice of the microfinance industry. The claim that profits are generated by consumption (“microdebt”) sounds confusing and absurd to Marxist political economy and many other strands. This concept indeed obscures our understanding of microfinance.

Luckily, Radhakrishnan has done detailed fieldwork, and we can apply a feminist reading of debt to the practice of microfinance. Lucí Cavallero and Verónica Gago argue that “there is not a singular subjectivity of indebtedness that can be universalized nor a sole debtor-creditor relation that can be separated from concrete situations and especially from sexual, gender, racial, and locational difference, precisely because debt does not homogenize those differences, but rather exploits them.”⁸ In the case of microfinance, the debt within a group is not even. The well-off leader is able to produce new interest gaps by transferring the credit at a higher interest rate. Some others are even forced into the debtor-creditor relationship under the influence of community leaders. Moreover, a feminist reading of debt reveals that the debt forces women to take precarious jobs to make ends meet. At the end of the day, “labor trajectories are very discontinuous, but their debts remain pending.”⁹ Women are also required to do unpaid work to get the credit. This feminist reading explains why microfinance is extractive. Finally, there is a need to cite the feminist response: “We are neither victims nor entrepreneurs.”

Notes

1. ↩ Globe Newswire, “Global Microfinance Strategic Market Report 2023–2030: How Microfinance Can Live Up to Expectations and Unlock a Promising Narrative?,” Fintech Futures, September 28, 2023.
2. ↩ Also see my book review of Sohini Kar’s Financializing Poverty: Labor and Risk in Indian Microfinance in Chinese: Jingyi Zhang, “틋위돨쏜휨뺏：丹똑鬼띨斤덞櫓돨익땡宅루麴》蝎팀” (Book Review: Financializing Poverty: Labor and Risk in Indian Microfinance),” 쒔셌栗죕陋님 (December 2022).
3. ↩ Smitha Radhakrishnan, Making Women Pay: Microfinance in Urban India (Durham: Duke University Press, 2022), 10.
4. ↩ Radhakrishnan, Making Women Pay, 103.
5. ↩ Radhakrishnan, Making Women Pay, 112.
6. ↩ Radhakrishnan, Making Women Pay, 143.
7. ↩ Research Unit for Political Economy, Crisis and Predation: India, COVID-19, and Global Finance (New York: Monthly Review Press, 2020), 186–87.
8. ↩ Lucí Cavallero and Verónica Gago, A Feminist Reading of Debt (London: Pluto Press, 2021), 4.
9. ↩ Cavallero and Gago, A Feminist Reading of Debt, 73.