A Critical History of Poverty Finance: Colonial Roots and Neoliberal Failures

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Other advocates focused their attention on the U.S. aid apparatus. Liberal feminists delicately maneuvered to mandate that USAID integrate women into development programs in 1973. However, implementation faced a slow road, bogged down by resistance and logistical difficulties. A requirement that year—long before the Reagan revolution—insisted that USAID work through private and voluntary entities as much as possible. Not only were USAID and others increasingly committed to creating markets, that effort had also to be executed through non-state intermediaries. Though government institutions maintained a role—through enabling regulation, funding basic infrastructure, or even serving as a guarantor as USAID did for the Mexican microfinance institution Accion—much of the work was delegated to nonprofit and commercial entities.

The elision of popular economic practices in these histories also stands in contrast to the microfinance institutions they analyze. Proponents of poverty capital have a longstanding interest in the everyday habits and behaviors of ordinary people. Indeed, the industry often invested in research on the lives and livelihoods of workers and peasants as part of their effort to extend debt to them. Large household surveys might ask how much people can afford to repay; behavioral economists might try to discern how finance intersects with other obligations. As Julia Elyachar writes, the animating idea of this style of developmentalism has been “to reconstitute the social networks and cultural practices of the poor as part of the free market.” In Cairo, where she studied, this involved mapping and appropriating the talents, proclivities, and friendships of would-be borrowers. In other words, the practices of people lumped together as “indigent” hold the attention of the microfinance industry because the sector rises or falls on the diversity of borrowers’ livelihoods, cultures, and ambitions. Andrew Leyshon, Emeritus Professor of Economic Geography at the University of Nottingham, author of Reformatted: Code, Networks and Latent" surplus populations and colonial histories of drought, groundnuts, and finance in Senegal Link opens in a new window', Geoforum 126: 441-450. The absurdity of Baron Munchausen grasping his hair to lift himself and his horse out of a bog has long amused young and old.A World Bank official interviewed by the Financial Times in early 2019 rhapsodised the virtues of emerging financial technology (fintech):

I have published on a range of issues around labour, finance, and governance including colonial histories, agrarian finance, informal economies, technological change, and international labour regulation. The simultaneous allure and anxiety that characterizes microfinance has spurred two new histories of the industry. The books—Bernards’s A Critical History of Poverty Finance: Colonial Roots and Neoliberal Failures (2022) and Joanne Meyerowitz’s A War on Global Poverty: The Lost Promise of Redistribution and the Rise of Microcredit (2021)—depart from the optimism of 1997 and 2006. They instead view microfinance as rooted in colonial and neoliberal models for the governing of workers, the extraction of value, and the maintenance of inequality. Through attention to the ideas and instruments of microfinanciers, these scholars offer important critiques. Yet in attending mostly to the archives of development practitioners, they offer fewer insights into what borrowers want and how they challenge hegemonic finance. Moreover, seeing the history of microfinance as an ongoing repetition of exploitation means the authors cannot offer a vision in which finance—whether socialized, decommodified, or democratized—might play a role in improving the lives of the global majority. Where is finance in the financialization of development? Link opens in a new window', Globalizations.

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States, money, and the persistence of colonial financial hierarchies in British West Africa Link opens in a new window', Development and Change, 54 (1): 64-86. Child labour, cobalt and the London Metal Exchange: Fixing, fetish, and the limits of financialization Link opens in a new window', Economy and Society 50 (4): 542-564. I do so by drawing together an analysis of a range of activities that can usefully be grouped under the heading of ‘poverty finance’, running from the early twentieth century to the present. I’ve adopted the term ‘poverty finance’ from Rankin (2013). She uses it to refer to ‘the business of extending financial services to those traditionally excluded from the mainstream financial system’ (2013:547). For Rankin, the general term ‘poverty finance’ is a means of drawing out the connections between projects in the Global North and South – showing how both microcredit and subprime mortgage markets depend on a kind of ‘socio-spatial fix.’ That is, Rankin emphasises how poverty finance creates new avenues for the redeployment of over-accumulated capital, both by reconfiguring spatial relations (as in Harvey’s [2006] ‘spatial fix’) and by configuring the survival of racialised and gendered marginal populations in ways that are amenable to financial accumulation. For the purposes of this book, the general rubric of poverty finance – designating activities aimed at extending finance to those ‘outside’ the mainstream financial system – is also a useful way of grouping together a range of activities across time. After experimenting for a number of years, Yunus launched the Grameen Bank in 1983, lending working capital (often as little as a few dollars) to rural women making handicrafts or running shops. Grameen’s appeal was captured in the idea of “social business” that Yunus extolled. While he readily critiqued exclusionary banks and predatory moneylenders, microcredit was hardly opposed to commerce. Instead, it made markets the key domain for fighting global poverty. After all, these were loans not handouts. Lenders expected women to use the money profitably, often grouping Grameen borrowers together so they were jointly liable for individual debts. They believed that social pressure and mutual support would significantly diminish the rate of default—and it did.

These fundamental dynamics manifest themselves in a recurrent tension between logics of inclusion and stratification. Soederberg (2014:22–3) argues, helpfully, that invocations of ‘inclusion’ and ‘access’ to credit and financial markets for previously marginalised groups – the extension of membership in the ‘community of money’, in Marx’s phrase – are powerful political interventions. They simultaneously invoke the right to participate in certain liberal freedoms (private property, enterprise, and contractual rights) while obscuring the underlying relations of exploitation on which financial transactions ultimately rest. Yet, actually-existing poverty finance interventions have frequently operated precisely by promising new ways of enabling financial institutions to reliably sort good from bad credit risks, insurable from non-insurable risks, productive farmers and incipient entrepreneurs from their (implicitly more deservingly poor) peers. Historically, we can trace out different responses to this tension, but it is a critical one, rooted in the fundamental contradiction between profit logics on one hand and precarious livelihoods on the other. Waiting for the market? Microinsurance and development as anticipatory marketization Link opens in a new window', Environment and Planning A: Economy and Space 54 (5): 949-965.There is a crucial paradox at the core of poverty finance interventions. The reason the poor are seen to need access to finance—namely due to their low and unpredictable incomes—is also a key reason why alleviating poverty by providing financial services to the poorest on a commercial basis has typically proven to be little more than a politically-driven fantasy. It’s risky and not particularly profitable, under most circumstances, to lend money to, insure, or provide other financial services to people with small and irregular incomes. Real accumulation, in short, doesn’t operate in the ways that neoliberals would like. Today’s critics of poverty capital must come to terms with why people desire credit, as many borrowers are eager financial actors. I started working on what would eventually become this book as part of a Social Science and Humanities Research Council of Canada (SSHRC) Postdoctoral Fellowship at Queen’s University, Canada. Thanks are due to SSHRC for financial support, to the Departments of Political Studies and Global Development Studies at Queen’s for giving me space to start working on it, and, especially, to Susanne Soederberg for her support as supervisor. Thanks to all at Pluto for their work bringing this book into production. I’m especially indebted to Jakob Horstman for his excellent editorial work, his close reading of the manuscript, and generally for his support throughout the development of this book. Thanks also to Miri Davidson for copy-editing the finished manuscript. I’m equally grateful to the four anonymous reviewers who provided very helpful comments at proposal stage which helped to give the project a much clearer direction.