Kenya blog: Microfinance in Africa

While I’ve been in Kenya I’ve been reading a new book by Milford Bateman; Why doesn’t microfinance work? The destructive rise of local neoliberalism. Microfinance has been feted as an effective solution to poverty for the very poor for a number of decades now, and in 2006 Mohammed Yunus, the founder of the first microfinance institution, the Grameen Bank in Bangladesh, was awarded the Nobel Peace Prize.

But Milford Bateman’s contention is that microfinance is not only very bad at ‘lifting people out of poverty’, but that it has only survived and prospered in the mainstream development community because it fits very well with needs of maintaining a neoliberal economic system.

Africa is, of course, now flooded with microcredit lenders, and Kenya is no exception. Bateman’s book is excellent at demolishing the ‘myths’ about the efficacy of microfinance, including the contention that it empowers women. But with particular reference to Africa he argues that what Africa needs is not “a vast reservoir of self-employed traders” but “a robust light industrial foundation … and manufacturing-based enterprises capable of productivity growth.” In fact, he argues, “the proliferation of microfinance in Africa is associated with precluding the chances of establishing the industrial foundations required for future growth and poverty reduction.” (p97)

Gathigia village in the Muranga District of Kenya's Central Province. Caroline Griffin/WDM

Yesterday we visited Kenya’s Central Highland region. While much wetter and lusher than some parts of Kenya, the region is still packed with smallholder farmers getting poor prices for their modest coffee crop, and remaining net food buyers despite growing some maize themselves.

We met a women’s group based near Kangema who are looking for ways to supplement their income. They want to build on their knowledge of chicken rearing to set up a local business, but need some initial investment. They said they weren’t looking for charity, but they also wanted to steer clear of conventional microfinance (signs for which dotted the main roads in the area). There had been women who had lost their homes after defaulting on microfinance loans, they said.

One alternative for these women could be finance co-operatives or credit unions. These member-owned institutions have, according to Bateman, been far more effective at building local economies where they have been encouraged. Backed with a sympathetic government, which is also geared up to support indigenous small- and medium-sized enterprises, financial co-operatives could form the basis of a successful and more solidarity-based economy, just as they did in the Italian region of Emilia-Romagna after the Second World War for instance. (pp175-178)

Microfinance, on the other hand, fits all too easily with an Africa which is a source of raw materials and a market for multinationals who take their profits out of the continent, but not a robust economy in its own right. This neoliberal path has seen the growth of a middle class who benefit from the system, but a much bigger group who don’t and continue to struggle to make any kind of life for themselves.

In the context of this rising inequality, microfinance almost acts as a form of containment of the poor, encouraging the dream of individual advancement (no matter how unlikely) and discouraging collective solutions and political demands. Ultimately, as Bateman argues, it is actually a poverty trap.

James O'Nions