Development
3.1 Introduction
“Microcredit looks like a miracle. It involves providing unsecured small loans to poor people in developing countries whom most banks would turn away. Yet these small borrowers almost always repay their loans (and the fairly steep interest charges) on time, which suggests that they find productive uses for the money. The industry's backers make some big claims as a result: Mohammad Yunus, the founder of Grameen Bank in Bangladesh and the father of microfinance, reckons that 5 % of Grameen Bank's clients exit poverty each year. Yet economists point out that there are
surprisingly few credible estimates of the extent to which microcredit actually reduces poverty. This would not matter too much if all microfinance funding were raised via the market (as an increasing proportion is). As long as investors were satisfied with their returns, there would be no cause for concern. Yet despite growing interest from private investors, 53 % of the $11.7 billion that was committed to the microfinance industry in 2008 still came at below-market rates from aid agencies, multilateral banks and other donors. Given that there are other things that aid money could be spent on, and that the rationale for subsidising microcredit is its effectiveness as an anti-poverty tool, it is important for donors to know whether it has the advertised effects (The Economist, 2009, pg. 76).”
As alluded to in the previous two chapters, starting from the mid eighties the concept of microfinance, the main context of this study, was conceived as a response mechanism to the poverty situation afflicting millions of people around the world. So remarkable has been the success of microfinance that 2005 was declared the year of microcredit by the general assembly of the United Nations. The declaration called for the establishment of all-inclusive financial markets and strengthening of the often unrecognised deposit of entrepreneurial spirit by providing financial and business support services to poor communities around the world. In the year 2007, more than 100 million poor families received a microloan, marking the attainment of a decade old benchmark set by the Microcredit Summit in Washington, DC in 1997 (Daley-Harris, 2009). The commitment to support microfinancing has been virtually without question. As the world was
grinding slowly into a global financial crisis in 2008, donors committed $11.7 billion to the course of microfinancing (The Economist, 2009).
To date, microfinancing can be associated with dynamism and innovativeness as reflected in its application in various countries, especially in the developing world. The phenomenon of microfinance is however complex, a feature that is often reflected in its
53 economic as well as socio-cultural dimensions wherever it is implemented. Further, results of research into the impact of microfinancing on poverty have been mixed. Whereas commissioned programme evaluators suggest that microfinancing is having a substantive positive impact on poverty (e.g.Pitt and Khandker, 1998, Robinson, 2001, Snodgrass and Sebstad, 2002), a contrary view tends to be held by independent analysts, especially economists and academics (e.g. Edward and Olsen, 2006, Morduch, 2000, Schmidt, 2010). Some academics claim that the extent to which microfinance
institutions (MFIs) can enable poor people to exit poverty sustainably is not yet established (Gibb, 2006b).
As indicated in chapter two, so far most studies on microfinance have been
predominantly atheoretical with emphasis on assessing its impact and outcomes using surveys, interviews and to a lesser extent econometric modelling. With the exception of a few studies there has been limited application of theoretical conceptions to research on the microfinance phenomenon. Dorado-Banacloche (2000) who employs a social entrepreneurship view to explain the emergence of microfinancing in Bolivia, Khandakar and Constantine (2004a) who look into motives for and means of MFIs using an infant industry and social consciousness driven capitalism view, and Mayoux (2000) who develops a taxonomy of microfinance practice are exceptions. This limited theoretical underpinning is particularly the case when it comes to understanding
variation in the practice of microfinance. This lack of theoretical conceptualisation may arguably be part of the reason for the ambiguity in the results of microfinancing studies, especially those focusing on effects of microfinance programmes, and in particular of business development services (BDS) on MSE development, as seen in chapter two.
This chapter of the thesis makes an attempt to overcome the previously predominantly atheoretical nature of research surrounding microfinance and microfinance models, including those that encompass concurrent BDS. The chapter puts forward a critical theoretical conception to explain the practice variation that is observed and through which to interpret findings. In particular, the chapter employs a relational framework informed by Pierre Bourdieu‟s conception of „a theory of practice‟ (1977) in addition to the closely related neo-institutional theory (e.g. Wry, 2009, Özen and Küskü, 2009, Lounsbury and Crumley, 2007b). These two theories are being applied increasingly in business practice research (see Özen and Küskü, 2009, Everett, 2002, Benson, 2006, Lounsbury and Crumley, 2007b, Emirbayer and Johnson, 2008). In so doing, this study
54 contributes to microfinance literature not only by demonstrating the universality of Bourdieu‟s views and their complementary value to neo-institutional theory, but also more importantly by helping to outline the pressures behind the variations in
microfinance programmes which seemingly have led to an apparent lack of consensus on „best practice‟ in microfinancing and criticisms of its so-called „mission drift‟(e.g. Christen, 2000).
Following this introduction is an overview of the two theoretical pillars put forward as a conceptual underpinning for microfinance practice, i.e. neo-institutional theory and Bourdieusian views. Next is an explanation of the evolution and state of microfinance practice as a social structure, the operations of which appear to be guided largely by a relational scheme. In particular the section applies the proposed theoretical concepts to discuss the emergence of practice variation, and the logics that inform delivery of both microcredit and BDS as embedded in various microfinance practices. The following section then examines the position-taking behaviour of those involved in the
microfinance „industry‟ and the regulatory challenges facing governments and microfinancing, and poses the hypotheses tested in this study.