MICROFINANCE AND POVERTY REDUCTION.
Johnson, Susan and Ben Rogaly. UK/Ireland: Oxfam and Actionaid. 1997.
Pp. 134. ©
In the pages of Microfinance and Poverty
Reduction, the reader encounters the interface between the eradication
of poverty and finance in the Third World. Well-known empirical examples
of such microfinance include Grameen Bank in Bangladesh, Indonesia's
Bank Rakyat, and Bolivia's Banco Sol. The book is not the usual academic
evaluation or critique. Rather, it is written as a 'how to' manual,
filled with examples to illustrate pitfalls, warn of difficulties, identify
niches, and indicate needs. The work is contemporary and set within
a global economy which has moved from Keynsian state intervention to
the neo-liberal present of market-based solutions. It does not attempt
to address poverty by denoting the fundamental causes of such destitution.
Instead, it assumes that these are given. The task at hand is for finance
to come to the rescue of the poor. Johnson and Rogaly address the issue
of how to best accomplish this.
Preparation of the book was a collegial effort which combined and integrated
several background papers, as well as a series of case study investigations
from various corners of the globe (Mexico, Pakistan, the Gambia, Ecuador,
and even one from an inner city in the U.K). Moreover, the work is a
pleasure to read because most of the sources - a combination of reports,
evaluations, oral presentations, and obscure books or journals - are
not usually found in university libraries.
The word "microfinance" in the title should not elicit fear
and confusion. This is a manual for an Aid Provider and not for a Chartered
Accountant. So the reader will not be confused by mathematical equations
and jargon. Poverty eradication through microfinance is the thesis which
binds the book neatly together. The work addresses financial intervention
and social change; savings, credit, collateral, and sustainability overcome
poverty. As the authors write, "
recent developments in
the design of microfinance schemes have generated an understandably
high degree of excitement. This is because innovative features in design
have reduced the costs and risks of making loans to poor and isolated
people, and make financial services available to people who were previously
excluded" (pp. 6-7).
The excitement is expressed in their investigation of the issue. Rather
than providing a set formula for monetary intervention, the authors
recommend a variable overall approach. The concern is to enable people
to overcome poverty. The investigation is based upon a thorough understanding
of the workings of existing financial services. Intervention must not
be blind, addressing areas of both strength and weakness. They suggest
interventions should tread lightly (p. 14) and indicate a set of cautionary
notes (pp. 25-6) for linkages with informal financial services.
Upon this foundation, the work considers issues of the of intervention
design (size and forms of loan, target clusters, disbursement, gender,
group-based lending, mobilization, the use of savings, repayment, and
interest). It then considers performance and endurability (management,
self-sustaining, monitoring, rotating funds, and eventual departure).
This is followed by an assessment of the impact of such efforts, including
both methodological and practical concerns. Each includes a brief summary
and conclusions section, furnishing a neat overview. The study is then
tied together by the five case study investigations which present lessons
regarding the pitfalls of microfinance intervention. These are especially
vital in that they explicitly speak to the issues raised in the previous
This book is about helping to eradicate poverty. On its own terms, this
book is a winner, underlined by its thoroughness and care. However,
as a contribution to the study of Third World (or African) development,
it is a curious voice from the past. It not only conflates Third World
and First World poverty, but it assumes that the fundamental cause of
such destitution resides in an internal barrier - the lack of monetary
support. It is well known that financial constraints are a correlate
of poverty and underdevelopment. However, it is not the cause! The implicit
argument of this book is that microfinance, if properly applied, will
overcome poverty and underdevelopment. The World Bank will be enamoured
by this modernization approach. The implicit message is one of aiding/coping,
but not one of overcoming poverty. Microfinance relieves symptoms and
this manual is superb in outlining its operations. My disquiet is rather
with the mindset which informs this investigation.
Department of Geography