Exploring Microfinance as a

Neoliberal Technology of Financialization

August 17, 2009

Majia Holmer Nadesan

Arizona State University at the West Campus

majia@asu.edu

(602) 543-6668

Bio: Majia Holmer Nadesan’s research integrates political economy, organization studies,

and cultural studies. Her most recent work addressing the relationship between the

market and biopolitics is titled Governmentality, Biopower, and Everyday Life (2008)

Routledge.

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Exploring Microfinance as a

Neoliberal Technology of Financialization

Abstract

Microenterprise and microcredit have emerged as prominent technologies of market-

based poverty alleviation in public policy, popular media, and political rhetoric. These

technologies promise to manage the risks caused by growing global inequalities while

incorporating the world’s poorest populations into global financial market operations.

This essay critically examines microcredit as a technology for incorporating poor

populations into global financial circuits, enabling the expropriation of value while

purportedly managing the security risks posed by poor populations. The high returns

associated with for-profit microcredit investment have prompted the securitization of

microloans, inserting microcredit into the circuits of speculative capital. Yet,

incorporation and financialization of poor regions and populations render the poor

increasingly vulnerable to the crises of speculative capital.

Key Words

Poverty alleviation, microenterprise, microfinance, neoliberalism, financial

globalization, securitization, security, financial crisis

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Exploring Microfinance as a

Neoliberal Technology of Financialization

1 billion people worldwide still live on less than US$1 a day and the number of

people living in absolute poverty rose 200,000 over the last 10 years. In 2008 Bill Gates

called for a “creative capitalism” using market forces to address the needs of the world’s

poor at the World Economic Summit in Davos, Switzerland. Gates’ approach to using

private enterprise and business acumen to redress poverty was celebrated in the popular

press. The Wall Street Journal approvingly noted, “A man once fixated on profit now

urges business to aid the poor” (Guth, 2008: A1). Gates’ speech at Davos is a part of a

growing social discourse emphasizing market based solutions for poverty alleviation.

The idea of poverty alleviation has largely replaced macro-economic

developmental discourses used several decades ago by the World Bank and Western

nations to describe efforts to improve developing nations’ economic and civic

infrastructures (Mestrum, 2006). The discourses and practices of contemporary poverty

alleviation prioritize privatized, market-based and market-enhancing solutions over direct

aid to poor governments for macro development projects. Contemporary poverty

alleviation aims to incorporate informal markets into global markets and to transform

(formerly) invisible populations into enterprising entrepreneurs through “empowerment

debt” (Elyachar, 2005: 29). Empowerment debt through microlending has emerged as

perhaps the most important poverty alleviation technology. This paper examines the

political economy of microfinance as a prominent market-based poverty alleviation

strategy.

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The World Bank, the International Monetary Fund (IMF), and national programs

such as USAID today rely on and promote neoliberal market-based problem-solution

frames for poverty alleviation.i Indeed, World Bank President Robert Zoellick

inaugurated his tenure in 2007 by stating that private-sector development would lead the

bank’s efforts to combat global poverty (Price, 2007). At a macro level, private-sector

development typically involves efforts to restructure developing nations’ public sector

and their informal markets, transforming both into a clearly mapped and privatized

accounting space that can be incorporation within global circuits of capital (Elyachar

2005). At the most micro level, efforts to incorporate persons into this accounting space

often involve initiatives that insert poor persons into global capital flows by providing

access to banking and insurance services. From a development perspective, these

initiatives presume that poverty is perpetuated by impoverished persons’ exclusion from

the (formalized) market and their attendant lack of access to the capital necessary for

entrepreneurial self-employment.

Poverty assistance programs pursued by state and interstate agencies are slowly

being supplemented and/or replaced by other sources of funding due to the conditionality

of state/interstate programs. The World Bank and other state-operated assistance

programs, such as the U.S. Millennium program, typically use market-based

conditionalities when evaluating the “worthiness” of aid recipients in developing

countries (see Bird and Willett, 2004). Consequently, many poor people and regions are

ineligible for direct forms of government and intergovernmental agency (e.g., World

Bank) assistance since they live in nations that fail to meet increasingly exacting

neoliberal standards of good economic and political governance. Nongovernmental

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organizations (NGOs) addressing poverty alleviation have increased in number, size, and

scope in part because of the limits of international “assistance” lending (see Fernando and

Heston, 1997). NGOs that foster microenterprise, in particular, have captivated the

popular western imagination. Indeed, Muhammad Yunus, founder of the NGO Grameen

Bank, has become a media celebrity for his work providing collateral-free microloans to

poor women who pursue microenterprise in Bangladesh. Microenterprise thus operates as

a security technology by promising to fill the gaps created by the ex post conditionality

based assistance of World Bank programs and ex ante conditionality of programs such as

the new U.S. Millennium Challenge Account, which promotes “good governance” as a

criterion for lending.

Poverty alleviation is a salient concern for western powers and their populations

because poverty is perceived as posing significant security issues. The world’s

impoverished populations are represented within a new security discourse as posing

migration, population, resource, and environmental “risks” to the world’s affluent

populations (Duffield, 2001; Eadie, 2005). Poverty is thus fundamentally tied to security

while poverty alleviation is tied to enhanced (national/global) market participation for

poor populations, optimally achieved through market-directed, for-profit investments

and/or NGO partnerships. Poverty alleviation strategies pursued through public-private

partnerships, philanthropic organizations, and NGOs, supplement the approaches adopted

by western nation states and their organizations toward managing the security risks posed

by the world’s impoverished populations.

The rise of microenterprise and microlending as market-based and market-

enhancing strategies for poverty alleviation are central concerns of this essay. This essay

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extends previous critical analyses of microenterprise by scholars such as Julia Elyachar

(2005), Nancy Jurik (2005), and Katherine Rankin (2001, 2002) by exploring how

financing for microenterprise has facilitated extension of neoliberal circuits of investment

capital while simultaneously exacerbating micro-entrepreneurs’ exploitation by, and

vulnerability to, global capital in the context of the 2008/2009 financial crisis. In the late

1990s and early 2000s, microlending for microenterprise captured the attention of

international financial institutions and investment funds. For-profit investment banks and

funds saw new opportunities for expropriating value through microlending. This

investment strategy has persisted even in the context of the implosion of credit in the fall

of 2008 (Copeland, 2009; Gross, 2008). Profit-oriented financial investments in

microenterprise are represented as philanthropic partnerships in the popular western press

and are therefore celebrated in the western imagination as aligning private profit with

public gain. However, the financial crisis that stemmed from the implosion of U.S. debt

beginning in late 2007 has dramatized how efforts to incorporate informal markets into

“formal” global markets through international financing of microenterprise exacerbate

poor population’s vulnerability to debt servitude by speculation.

This essay first introduces microenterprise before turning to address the aims,

strategies, and technologies of microlending. This discussion examines why microfinance

appeals to investors and explores current efforts to securitize microloans. The essay then

examines how the poor’s incorporation within speculative capitalism exacerbates their

vulnerability to global market forces in the context of the ongoing financial crisis. This

essay’s analysis of for-profit investments in microfinance extends existing ethnographic

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and sociological accounts of how neoliberal logics have captured and transformed the

poor through “empowerment debt” (Elyachar, 2005: 29, 191).

The Rise of Microenterprise

Microenterprise can be understood as small-scale sole proprietorships,

partnerships, or family enterprises characterized by minimal start-up costs. The idea of

microenterprise as a strategy for redressing poverty is not new. For example, in the early

1800s, the Society for Bettering the Condition and Increasing the Comforts of the Poor

produced a treatise encouraging gainful self-employment in “straw-platting” for “young

persons of eight years of age, the infirm, the aged, the cripple, and the blind” (6). The

Society’s program aimed to promote economic self-sufficiency for the deserving poor

without fostering charitable dependency. The philanthropic enterprise of fostering

microenterprise thus began as a strategy to employ impoverished, largely urban

populations severed from social and economic means of subsistence.

At the close of the twentieth century, microenterprise emerged again as a pre-

eminent strategy for solving abject poverty. Late twentieth century microenterprise

advocates tend to understand poverty as deriving from poor populations’ lack of access to

capital and their attendant inability to participate in formal national and/or global

marketplaces. Thus, microenterprise advocates have urged for the last 20 years that

governmental organizations/aid and NGOs alike free up capital for microenterprise

endeavors. This strategy of poverty alleviation emphasizes the benefits of a market

development solution, which is represented as fostering personal agency while also

incorporating previously informal economies into national and global market operations.

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NGOs role in promoting microenterprise helped legitimize this technology of

poverty alleviation as philanthropic and grassroots. However, over the last 10 years, the

funds available to non-profit NGOs and philanthropic endeavors were increasingly

recognized as inadequate, creating a perceived opportunity for for-profit investment in

microfinance and microenterprise. For-profit investment seduced the neoliberal

imagination by offering a market-based and market-implemented solution for poverty

that simultaneously enriched financial speculators. This section briefly chronicles these

developments, beginning with an account of the rise of microenterprise in the context of

neoliberal structural adjustments.

Nancy Jurik’s (2005) Bootstrap Dreams: Microenterprise Development in an Era

of Welfare Reform describes how microenterprise emerged as a market development/

poverty strategy in the second half of the twentieth century. Jurik’s account chronicles

how NGOs generally, and micro development programs specifically, arose in the

developing world in the 1970s onward as poor nations were forced to cut government

spending as part of neoliberal structural adjustment programs stipulated by the IMF, the

World Bank, and trade organizations (GATT, WTO). State-managed development

programs (e.g., dams and roads) in the developing world were criticized during this time

for bureaucratic inefficiency, corruption, and for failing to redress high levels of

unemployment and poverty. While these charges often had merit, they obscured the role

of vested political interests in dictating what types of development programs were funded

by international agencies as well as the conditions of their implementation (see Wedel,

2001). John Perkins’ Confessions of an Economic Hit Man chronicles how western

corporate interests directly benefited from inflated infrastructural “development” projects

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whose funding was provided by the World Bank. Moreover, corruption within

developing countries often kept resources from reaching neediest populations. Rather

than acknowledging and fixing these problems, neoliberal “reform” efforts enforced by

authorities in organizations such as the World Bank and IMF demanded that poor nations

seek market-based solutions to address economic stagnation and poverty.

Neoliberal reforms stipulated by international lending agencies and U.S.

assistance programs in the 1980s often stressed privatization of infrastructures and export

oriented production. These strategies had the effect of dislocating small farmers who

could not compete in local markets against cheap agricultural imports while making

workers in export-oriented industries extremely vulnerable to abrupt termination in the

wake of market fluctuations and plant re-locations as contractors searched endlessly for

lower wages (see Davis, 2006). Gainful self-employment, an idea that had circulated for

some time on the margins of development discourse, slowly garnered support as the most

viable strategy for employing impoverished and/or dislocated farmers and workers.

In 1972 the International Labor Organization (ILO) had issued a report promoting

self-employment as an economic development strategy appropriate for redressing poverty

associated with the informal, unregulated economic sector of poor nations (Jurik 2005).

This report accorded with neoliberal logics that valorized market based solutions

involving individual enterprise. In 1978 USAID funded the Program for Investment in

the Small Capital Enterprise Sector, which provided microenterprise funding for urban

poor in targeted developing nations (Jurik, 2005). Despite these state-supported efforts to

develop microenterprise, it was a NGO that catapulted this approach to poverty-

alleviation toward its current fame.

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In 1983 Yunus set up the Grameen Bank aimed at lending to Bangladesh’s

poorest women (Yunus, 1998). Yunus’ bank successfully provided microloans to over

two million of Bangladesh’s poorest women by 1998 with a repayment rate of 95 percent.

Yunus believes the Grameen Bank success lies in its particular approach to poverty

alleviation. He claims that the reasons for poverty are misunderstood by mainstream

economics:

The poor are unable to establish control over capital because they usually

do not inherit it and/or because they are not able to secure access to it from

financial institutions. Indeed, they often inherit "negative capital" in the

sense that their parents' debts to moneylenders are passed on to them. (53)

Yunus basically concurs with the neoliberal position that the poor remain poor because

they are ill-equipped to compete in the market. His plan stresses the role of credit in

enabling the poor to enter into the competitive market.

Recognizing that most financial institutions do not lend to those without

collateral, Yunus sought to tackle poverty by increasing the poor’s competitiveness by

enabling access to credit:

Making access to commercial credit available to small-scale retail

establishments can, for example, completely change their relationship with

wholesalers and manufacturers, allowing them more choices and the

ability to take advantage of economies of scale. The same goes for those

involved in cottage industries, transportation and agriculture. In short,

anyone possessing access to credit is better positioned to take advantage of

potential economic opportunities. (54)

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Yunus believes macro economic transformations should target microeconomic

environments by enabling individuals’ participation in the market.

Interestingly, Yunus adopts a marketized view of society’s members. He

democratizes the idea of the entrepreneur by claiming that entrepreneurs are not a special

class of people. He claims that the informal sector, what he describes as the people’s

sector, is populated by entrepreneurs and that this sector has the potential to offer more

opportunities than the formal sector of paid wage employment. Yunus argues that “self-

employment, supported by credit, has more potential for improving the asset base of a

family than wage employment.”

In contrast with Yunus’ glowing account of micro-entrepreneurs, Julia Elyachar’s

ethnographic account of NGO operations in Egypt critically examines how

microenterprise training protocols and lending practices transformed (formerly) informal

markets and the poor through “debt empowerment.” Elyachar observes that NGO

fostered microenterprises deconstructed (previously) informal markets by indebting self-

employed workers through exorbitant interest rates charged by intermediary lending

institutions. Microenterprise recipients faced forcibly closed workshops, evictions, and

criminal (not civil) prosecutions for failure to repay high interest loans backed by the

NGOs (214). Microenterprise also deconstructed informal markets by transforming

subjectivities. NGO promulgated discourses and practices of microenterprise required

lending recipients to adopt the language of accounting to represent their lives and

relationships while rendering these individuals accountable to neoliberal market

definitions of success and failure. NGOs strategically appropriated relevant cultural

devices to shame the poor into repayment while responsibilizing loan recipients for their

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microenterprise “failures” even when the recipients lacked control over the market

conditions that shaped their capacity to generate profits. Elyachar concludes that

microenterprise actually increased official corruption in Egypt while enabling and

legitimizing the market’s expropriation of value from microenterprise entrepreneurs.

Elyachar’s critical ethnography of microenterprise as debt empowerment remains

“outside” of the popular discourse and understanding of microenterprise as a poverty

alleviation technique.

Rather, it is Yunus’ discourse of microenterprise empowerment that circulates

across U.S. and British business literature, popular periodicals, and the news media. The

i David Harvey defines neoliberalism accordingly:

…a theory of political economic practices that propose that human well-

being can best be advanced by liberating individual entrepreneurial

freedoms and skills within an institutional framework characterized by

strong private property rights, free markets, and free trade. The role of the

state is to create and preserve an institutional framework appropriate to

such practices. (2005: 2)

Chicago style neoliberalism promoted by Milton Friedman demands that all forms of

government action be subject to market tests of their efficiency and capacity to enhance

and extend market transactions, leading to a kind of “economic positivism” (Foucault,

2008: 247). Perhaps most significantly, neoliberal technologies of government pursue the

ideal of perpetual peace through totalized, globalized, market participation. See Arturo

Escobar (1995) Sarah Babb (2004) and Mike Davis (2006) for illustrations of how

neoliberalism has been applied to developing nations’ economies.

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United Nations named 2005 the Year of Microcredit (“Starting Over,” 2005). Yunus won

the 2006 Nobel peace prize for his role in promoting financial services for the poor.

NGOs credibility in poverty alleviation was bolstered by Yunus’ celebrity. NGO

“voluntarism” and willingness to criticize state governments made them appear more

“grassroots or closer to the people (Fernando and Heston, 1997). Additionally, the

common, but erroneous, belief that NGOs are always non-profit led publics in

industrialized nations to regard them as more committed to their causes than vast state-

supported programs (Fernando and Heston, 1997).

Yunus’ celebrity helped spur an entire genre of literature dedicated to enhancing

the poor’s market competition and economic competitiveness, For example, in The

Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else

(2002), Hernando DeSoto contends the poor stay poor because of their inability to

mobilize their assets (i.e., property held but not titled) to access loans and other capital

necessary for developing enterprises. He views the poor as a “source of wealth”

untapped. In order to realize and expand these untapped assets, DeSoto believes poor

nations must reform their legal infrastructures in ways that formalize and standardize

property rights and access to lending. In sum, DeSoto believes that standardized property

rights will enable the poor to secure lending by using their property as collateral, which

will enable them to pursue self-sufficiency through microenterprise. Key to his logic is

the idea that poor remain poor because they are barred from entrepreneurial participation

in the formalized and global market defined in terms of international recognized property

rights and access to lending.

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Microenterprise and microlending received considerable attention in the popular

business press. Business periodicals such as Business Week and the Economist frequently

tout microenterprise as a solution for even the most abject poverty. In 2001 The

Economist claimed that the total value of property held by poor in the developing world

and former Soviet block countries totaled at least $9.3 trillion (no title, 2001). Following

DeSoto’s argument, the periodical observed that the poor are unable to leverage their

property and thus are barred from effective market competition. The solution to poverty

is found in exploiting property for the purposes of financing enterprise. In 2002 Business

Week emphasized the role of microcredit in fostering microenterprise in a section titled,

“Small Loan, Big Dream” (Engardio, 2002). Again, in 2003, the magazine a commentary

on the benefits of microenterprise titled, “A Way to Help Africa Help Itself” (Engardio,

2003). By 2005, Business Week lauded the “Microcredit Missionary” who used his own

money to finance microenterprise (Gangemi, 2005). The article noted approvingly that as

of December 2004, some 3200 microcredit institutions had reached more than 92 million

clients, almost 73 percent of whom were living in dire poverty.

Microenterprise resonates with English speaking publics receptive to the moral

ideology of the benefits and efficiencies of individual enterprise and market rewards. The

idea that poverty alleviation can occur in the absence of re-distributive policies seduces.

The link between global market expansion and security is unquestioned. Conversely,

public suspicion grows of the goals and strategies of large scale, Keynesian social-

welfare economic development projects. Microenterprise, once seen as a tool for the poor

in the developing world, has even been adapted to poor, welfare-dependent populations in

developed countries such as the U.S. (see Sherraden, Sanders, and Sherraden, 2004).

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“Grassroots” enterprise became the model for community economic development in

urban areas suffering from de-industrialization caused impoverishment (Cummings,

2001). In sum, as a technology of government, microenterprise shifts risk to enterprising

individuals who are encouraged to assume responsibility for their economic livelihood. It

simultaneously responsibilizes and empowers the poor (Rankin, 2001, 2002).

Lending for microenterprise can be provided by any number of sources including:

international institutions (e.g., the World Bank); state-sponsored “development”

programs (e.g., U.S.A.I.D. and the Millennium Challenge Act); and NGOs, which

embrace a wide array of for-profits, philanthropic organizations, and non-profits (e.g.,

FINCA and ACCION) (Flynn, 2007). Some NGO microlending programs even attempt

to create direct connections between (relatively) wealthy donors and needy recipients in

the developing world, thereby promoting a moral economy within which wealthy

individuals get to select worthy recipients. Most importantly for the purposes of this

paper, microlending also attracted for-profit investors (e.g., Citigroup and HSBC). Much

of the recent growth in microlending stems from the expansion of for-profit enterprises in

this area (Copeland, 2009; CSFI, 2008). Neoliberal authorities working in development

organizations such as the World Bank and USAID advocate this trend (see Gross, 2008).

Katherine Rankin describes the growth of private sources of funding for

microenterprise in relation to “a controversial shift in development rationality” absolving

states from responsibility for fostering economic development (20). This evolving

neoliberal development logic “devolves responsibility for securing economic outcomes to

individuals acting as responsible agents of their own well-being” (20). Neoliberal logics

that shift risk to individuals through programs such as microenterprise purportedly

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combat poor populations’ dependency upon assistance and thereby foster their autonomy

and moral well-being. In practice, private funding for microenterprise financializes the

poor by inserting them into global capital circuits, transforming the poor into investable

commodities. Randy Martin defines “financialization” as “the process by which social

affiliations are reconfigured to extract wealth as an ends by means of risk management”

(2007: 6-7).

Lending and insurance mediate newly created relationships between transformed

micro-entrepreneurs and global capital markets. By 2008 the microlending financial

sector, termed microfinance, exceeded more than 1 billion U.S. dollars a year in

investments (Centre for the Study of Financial Innovation [CSFI], 2008). Currently,

efforts are underway to amplify investment opportunities from securitized microloans.

These efforts are heralded as “building of an ‘inclusive financial system” capable of

supporting the “strong but often untapped entrepreneurial spirit that exists in poor

concerns around the world” (Byström, 2008: 2109). The next section explains how

microfinance funds microenterprise, before turning to recent developments in the

securitization of microfinance.

Funding Microenterprise: Microlending

Microfinance for microenterprise began to gain the attention of large investment

firms at the beginning of the twenty-first century. In 2003 Goldman Sachs hosted a

conference in New York titled, “When Wall Street Meets the World of Microfinance”

lauding the “double bottom line” achievable through microfinance, socially

responsibility, and financial profits (Rawe, 2003). The article reporting on this conference

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observed that “with 3 billion people living on less than $2 a day, there's a huge market for

this kind of seed capital” and noted that microfinance was less risky in some cases than

investment in foreign banks (Rawe, 2003). Goldman Sachs helped host a 2007

conference titled, “Microfinance and the Capital Markets: a Global Exchange”

(http://www.swwb.org/id,17/rid,3). Goldman Sachs announced in 2008 it would spend

$100 million over five years to provide business education to 10,000 women in

developing countries (Tse, 2008).

Accordingly, over the last 5 years for-profit microlending achieved symbolic and

material import for its role in fostering development through microenterprise.

Accordingly, the Economist urged readers in 2005 to abandon the philanthropic model of

microfinance in favor of a more business-based model. The article observed that a

“cultural challenge” must be confronted to “transform something that started as a charity

into a proper business” (“The Seeds,” 2005: 11). Prahalad’s (2006) bestselling The

Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits helped

promote the idea that microlending and microenterprise could justifiably be transformed

into profitable business ventures for outside investors looking for lucrative returns.

Forbes magazine observed happily that “as many as half of the world’s 3 billion poor

may be eligible for microloans” (Swibel, 2008: 50). As of 2009, more than 100

investment funds focus on microfinance (Copeland, 2009).

Illustrating the transformation of microlending is the story of Compartamos.

Carlos Danel and Carlos Labarthe transformed this formerly “nonprofit” microlender in

Mexico into one of that country’s most profitable banks. In 2007 the for-profit

Compartamos reported profits of $80 million, and returns on equity of more than 40

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percent (Malkin, 2008). Compartamos offers loans without collateral but charges

customers an annual interest rate of almost 90 percent. The bank’s IPO in April of 2007

brought in $458 million in investments (Malkin, 2008). Compartamos has been accused

of “monopolistic exploitation of the poor” by critics but the story of its financial success

eclipses this type of dissent (see “Microfinance,” 2008).

Recently, the Bangladesh based NGO ASA sought to emulate this capitalist story

of success by launching for-profit commercial microlending outside of Bangladesh by

leveraging $150 in private equity investments (“Microcapital Story,” 2008). These profit-

seeking enterprises have concerned critics who believe the focus on financial returns

subverts the larger goal of fostering independence among the world’s poor. A 2008 report

produced by the CSFI, “Microfinance Banana Skins,” addresses charges of “mission

drift” as for-profit microlenders shift from “serving the poor to flogging high interest rate

consumer finance products” (1). But neoliberal capitalist logics see no contradictions in

the business of microenterprise since market growth is seen as the most effective strategy

for poverty alleviation. Accordingly, the microfinance web site The MiFi Report argues

that it is a “myth” that providing for-profit services for the poor exploits the poor:

Like any other bank, microfinance organizations, both for-profit and non-

profit, provide a product at a given price. Their market, just like the

vendors in Khayelitsha or any other township, happen to be poor, but the

demand is still there, and effectively supplying that demand creates a

mutually beneficial relationship. To say the poor are too poor to be

provided a service or product they demand is like assuming some people

are so poor that they shouldn’t be offered Cokes. (Beshara, n.d.)

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As argued in this passage, microfinance is a financial service that ought to be regarded as

equivalent to any other commercial transaction.

Global financial investment in microenterprise can occur in a variety of ways.

First, large banks headquartered in wealthy industrialized nations can invest in regional

or local banks in the developing world. For example, the top three French banks, BNP

Paribas SA, Société-Générale, and Crédit Agricole SA are active in North African banks

(Parasie, 2007). Second, transnational banks can also set up local banks in the developing

world. For instance, Wal-Mart and Citigroup operate in the Mexican market under local

names (Epstein & Smith, 2007). Third, investment funds (as distinguished from banks)

can purchase stocks or bonds in local banks in impoverished regions with the aim of

increasing microlending (Copeland, 2009). The banks then target loans at “tiny

entrepreneurs” at annual interest rates up to 50 percent (Copeland, 2009: A12). Fourth,

microlending institutions that began as NGOs can go public or transform themselves into

commercial operations through IPOs or through private credit infusions/partnerships.

Microfinance lenders such as ASA often rely on foreign investors for their risk capital

constituted of equity and subordinated debt (Swibel, 2008). For example, Sequoia Capital

has an $11.5 share of SKS Microfinance (Epstein and Smith, 2007). This fourth strategy

illustrates the degree to which NGO financing is enmeshed with for-profit financial

enterprise.

Lending is often highly profitable for profit-oriented microlending because

interest rates range from 50 to 100 percent on an annualized basis (Boudreaux and

Cowen, 2008). According to the Inter-American Development Bank, investors’ return on

microloans exceeded 20 percent through 2006 (Flynn, 2007). Efforts to extract value

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from microfinance extend beyond interest payments and administrative fees. There is a

recent move to expand financial services to the poor beyond the provision of credit, as

illustrated by this passage:

There is an assumption that credit is the main financial service needed by

the poor. Actually, it is not. The poor want to save much more money than

they want to borrow. . . The poor also want to protect themselves against

risks. However, the microfinance field in general focuses on credit and

does not emphasize other financial services, such as savings and

insurance. (Mahajan, 2007: 200)

Savings and insurance are components of what Moser describes as “livelihood finance”

(205). Livelihood finance can provide more opportunities for extracting value as the poor

are often required to open bank accounts and purchase insurance as conditions for

receiving microloans (Epstein and Smith, 2007; Flynn, 2007). Structural adjustment

programs that shift medical, disability, and retirement risks to individuals heighten the

appeal of insurance. Thus, banking and insurance operate as conditions of possibility for

participating in a circulating and speculative neoliberal form of life based upon and

extending the financialization of all forms of social life (see Dillon and Lobo-Guerrero

2009).

In sum, microlending and livelihood finance essentially “financialize” the poor

through their incorporation within global capital circuits while simultaneously promising

to manage security risks posed by their impoverishment. This incorporation conveniently

hedges against the dislocationary effects of neoliberal financialization in developed

western economies. Over the last 30 years, neoliberal economies prioritized profits

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achieved through financial services over manufacturing activities (see Foster and

Magdoff, 2009; Phillips 2006). By 2004, financial firms commanded nearly 40 percent of

all U.S. profits, primarily by managing, packaging, and trading debt and credit

instruments (including household debt) and managing debt-related corporate restructuring

(Phillips, 2006). Excessive debt-leveraging in the U.S., U.K., and (to a lesser extent)

Europe produced the current financial crisis. In order to maintain its past momentum,

speculative finance must replace the saturated and highly leveraged markets of the

developed economies with new and relatively untouched markets. Global financial

capital encroaches into new territories through the expansion of debt markets. It is hardly

surprising therefore that the world’s poorest populations would be targeted for “debt

empowerment” (see Elyachar, 2005).

Global Securitization of Microloans

International investments into banks that provide microloans illustrate the

circulation of global capital. Microlending seduces global banks and investment funds

because it offers low default rates and high rates of return. Those involved in the for-

profit microfinance business tout these benefits. For instance, Microplace champions

microloans’ low investment risks, based on a historical 97 percent repayment rate among

microfinance borrowers (https://www.microplace.com/). The Wall Street Journal

observes that microfinance default rates have not (as of yet) been significantly impacted

by the global financial crisis. Indeed, microfinance funds returned an average of 4.47

percent for investors from August 2008 to August 2009, outperforming most other

investment classes (Copeland, 2009). Byström (2008) agues that microlending constitutes

21

a good investment opportunity because returns are largely uncorrelated with returns from

other asset classes. Securitization of microloans helps bridge local lending settings and

international capital markets by multiplying the investment opportunities available from

packaged microloans. This section briefly defines securitization before exploring how it

has been applied to microloans.

In the 1970s investment banks and bundlers, such as Lehman Brothers, began

pooling assets (such as personal loans, mortgages, etc.) and then issuing bonds backed by

these assets. The securities (i.e., bonds) were rated based on assessments of their risk (of

default) and of the value of their returns (given market conditions). In effect, the

securities’ ratings were distinct from the credit risks for the originating firm (Byström,

2008). Bundled securities were sold piecemeal across the globe, dispersing risk but also

fostering new global interdependencies, as witnessed by the global credit implosion of

2008 (to be discussed presently). This process of issuing securities (bonds) from pooled

assets is known as securitization.

Securitization became more sophisticated over the last 20 years with the

introduction of “tranching” (Byström, 2008). Tranching occurs as cash flow from an

underlying pool of assets is split into several separate classes of securities characterized

by different risk-profiles. Tranching splits the original risk of an asset pool into low and

high risk securities. Holders of high-risk tranches are protected from “the first defaults in

the underlying asset pools” (2112). Holders of high-risk tranches could (until recently)

purchase insurance against default, termed “credit default swaps,” which were sold by

companies such as AIG. Collaterized debt obligations (CDOs), first introduced in the

22

1980s, are tranched securities, but the underlying securitized pool is smaller and may

contain non-traditional assets including securities and credit default swaps.ii

Microfinancing has already been subject to basic securitization. In 2006, the first

microcredit securitization occurred in the form of a $180 million contract involving

Bangladesh Rural Advancement Committee (BRAC), RSA Capital, Citigroup,

Netherlands Development Finance Company and KfW Entwicklungsbank (“World’s

First,” 2006). The transaction required creation of a special purpose trust to purchase

BRAC’s receivables and issues certificates to investors (e.g., Citibank). Since 2006,

primary investors have made these bonds available to secondary purchasers from around

the world.

Microfinancing institutions today commonly pool microloans and then issue

bonds, which are sold to primary (institutional) and secondary investors around the world

(“IFMR Capital,” 2009; Malkin, 2008). Microfinance-backed bonds represent the most

basic form of securitization and tend to be created by the lenders from local loans, rather

ii Janet Tavakoli, a recognized expert on CDOs, defines them accordingly:

A Collateralized Debt Obligation (CDO) is backed by portfolios of assets

that may include a combination of bonds, loans, securitized receivables,

asset-backed securities, tranches of other collateralized debt obligations,

or credit derivatives referencing any of the former… Up to the end of the

1990’s, collateralized debt obligations all used Special Purpose Entities

(SPEs), also known as Special Purpose Vehicles(SPVs), that purchased

the portfolio of assets and issued tranches of debt and equity. The

specialpurpose entity purchased the assets from a bank’s balance sheet

and/or trading books. (http://www.tavakolistructuredfinance.com/cdo.pdf)

23

than by investment banks and hedge funds. More recently, however, microfinance has

evolved as investment funds are specializing in securities created from pooled microloans

from all over the world. For example, the online brokerage Microplace offers investors

bond-like securities forged from bundles of microloans from around the world

(https://www.microplace.com/). Many of these types of securities have set terms and

interest rates, but are not rated or tranched (see “Making Money” 2009).

Microloans’ relatively low default rates and high returns are attracting so much

interest that some advocates urge that tranches and other exotic financial instruments,

such as collateralized debt obligations, be created from pooled microloans (e.g., see

Byström, 2008). Already steps have been taken to facilitate the creation of these more

abstract financial instruments. In March 2009, IFMR Capital and Equitas Micro Finance

India completed the first rated micro loan pool backed securitization based on a principal

amount of pass-through certificates equal to 157 million Rupees (“IFMR Capital,” 2008).

In order to protect investors who purchase tranches, Byström argues that loan originators

should be required to hold the low-tranche securities because “In this way, the originator

will be the first to suffer losses if the loans are low quality” (2115).

The securitization and tranching of microloans will enable even further financial

speculation. High-risk tranche holders might purchase credit default swaps. Perhaps

futures might be created from microloan-based tranches. Futures are a kind of derivative

that basically operates like a contract by allowing holders to purchase securities in the

future at specified prices. LiPuma and Lee (2005) reported that by 2005, the value of

financial derivatives traded annually approximated $100 trillion (until the implosion of

derivative markets in 2008). Derivatives are already used in the political economy of

24

microlending because the International Finance Corporation, a division of the World

Bank, uses derivatives to generate capital, which is re-invested in microloans (see

http://www.ifc.org/ifcext/about.nsf/Content/About_IFC).

Current observers of the global financial crisis may doubt that credit default

swaps and derivatives might be derived from microloans given the implosion of markets

for these instruments over the last year. Although this skepticism is certainly warranted,

microloans may be regarded as prime material for re-igniting speculators’ interests in

tranches and derivative instruments. Microloans benefit from unique risk-management

technologies rooted in the cultural economy of microlending. I briefly compare the risk

management strategies for U.S. debt instruments to those associated with microfinance in

order to demonstrate why microfinance-based securities may be viewed as capable of re-

igniting speculative finance.

In the last ten years, risk-management and value assessment technologies

proliferated in advanced economies as investors demanded more sophisticated

technologies for representing value and risk (Jia-Ming and Morss, 2005). Efforts to value

products and gauge risks in wealthy nations, such as the U.S. and U.K., occurred through

complex surveillance technologies targeted at borrower financial activity (Marron, 2007).

Statistical scoring technologies were created to evaluate the risks of default for individual

borrowers, sometimes based on continuous surveillance of borrower financial activity

(e.g., late utility payments) (see Marron, 2007). Statistical information about borrower

risk (purportedly) informed the bundling and subsequent valuation of securities derived

from debt. Financial analysts also evaluated products and gauged risks through ongoing

monitoring of the market using mathematical models that predicted probability

25

distributions of returns for specific categories of products. Aglietta and Breton (2001)

describe this latter strategy in terms of a logic of homogenization in comparison with the

logic of specificity used by lenders to evaluate borrower’s financial activity.

Microlending securities entice international investors not simply because of their

high levels of returns (stemming ultimately from high-interest rates), but entice also

because they offer specific risk management technologies. Microlending risk-

management occurs through normative controls and through direct surveillance by risk-

adjustors. For instance, Compartamos and many other microlenders organize lenders into

groups. These groups are held responsible for guaranteeing individual lenders’

repayment. Agents from the lenders often visit the largely female groups weekly in their

home villages to evaluate repayments (Malkin, 2008). These practices enable direct

surveillance and thereby encourage normative discipline (Papa, Auwal, and Singhal,

1997). Individual borrowers are shamed into repayment. In Egypt, failure to repay

microloans results in criminal prosecution (Elyachar, 2005). International investors in

microfinance, directly or as purchasers of securities, therefore possess a unique, specific

risk-management technology so long as originators continue to be held accountable for

loans’ repayment. In contrast with other forms of personal debt (e.g., mortgage-back

securities) from the advanced economies of the western world, microloans from poor

regions offer investors unprecedented social controls in securing value.

Not surprisingly, private equity funds and other foreign investors have directed

billions of dollars into microfinance world-wide in the last few years (Gokhale, 2009).

This interest has spurred lending. For instance, in India microloans outstanding totaled

1.24 billion by March 31, 2008, an increase of 72 percent year over year. Dexia Bank’s

26

$500 million Micro-Credit Fund added $100 million over the last year (Copeland, 2009).

Widespread publicity of high returns will no doubt spur more microlending. As Byström

concludes, “an almost entirely untouched market lies at the feet of the investment

community” (2118).

Microenterprise and microfinance together seemed to realize the fantasy

promoted by Adam Smith (1723-1790). Smith’s “invisible hand” spiritualized the divine

harmony between private (economic) interest and public advantage, aligning population

and market within a common logic of government. For Smith, the “invisible hand” was

implied from the apparent truth that individuals’ intentionally self-interested labor

effectively promotes the “public interest”: “By pursuing his own interest he frequently

promotes that of the society more effectually than when he really intends to promote it”

(572). The essay’s final section explores how the speculative nature of the contemporary

invisible hand compromises microenterprise.

Microenterprise as a Cornerstone of Economic Development: Perils and Promises

Microlending and microenterprise are technologies of government that accord

with neoliberal efforts to incorporate local, informal markets and poor populations into

global markets available for financial expropriation of value. Microenterprise

technologies offer opportunities for speculative capital while purportedly promoting

global security by dispersing risk (through securities) while alleviating poverty.

Microlending and microenterprise responsibilize loan recipient using normative and

individualizing risk-management technologies. The individualization of risk and

responsibility please global investors. Investors purchase securities derived from pooled

27

micro-debt. The debt is perceived as relatively low in risk given the normative controls

and insurance contracts often required by lenders. Tranching further protects investors,

particularly if lenders are required to hold high-risk tranches. Rating of securitized

microloans offers opportunities for the creation of new microcredit backed derivatives.

Thus, microenterprise and microfinance promises to manage global biopolitical risks

posed by impoverished populations through their debt empowerment while offering

profit-seeking opportunities for global speculative capital.

But the fantasmic promises of microcredit and microenterprise face difficult

challenges that threaten to puncture neoliberal fantasies of self-regulating markets and

enterprising subjects. In concluding this essay, I examine two challenges facing

microenterprise. The first challenge concerns the fantasy of grassroots values and

enterprising subjects in relation to the realities of debt servitude. The second addresses

the limits of market-based poverty alleviation, as illustrated through analyses of the

effects of global market interdependencies and risk for the world’s poorest populations in

the context of the current financial crisis.

The Fantasy of Enterprising Subjects

Neoliberal logics assume that poverty derives from either a failure of personal

volition or an ability to access needed market resources to compete effectively in the

market. Microenterprise supposedly works by enabling and rewarding personal volition.

However, neoliberal metrics for measuring outcomes have revealed substantial failures in

microenterprise not directly attributable to individual failings.

Neoliberal logics demand empirical measures for representing and evaluating the

relative successes or failures of neoliberal enterprises including philanthropic ones. For

28

instance, the Gates foundation uses statistical measures to gauge of the effectiveness of

its grant giving (Guth, 2007). Empirical data collected on microenterprise success often

operationalized success as successful loan repayment (Jurik, 2005). However, as more

nuanced measures of success have been formulated, including ones that evaluate whether

the microenterprise venture was successful in pulling the borrower out of poverty, it has

become increasingly apparent that microenterprise alone is rarely sufficient to alleviate

gross poverty. Microcredit clients lack skills necessary for building successful

enterprises. Microenterprises are often too small in scale to reap returns. Microloans are

often are used for purposes other than enterprise (e.g., health care) and microenterprises

often lack access to the types of markets required to sell goods/services (see Boudreaux

and Tyler, 2008; Gokhale, 2009; Jurik, 2005; Karnani, 2007; Kantor, 2005; Surowiecki,

2008). Microenterprises that have access to markets typically must compete with larger

businesses that operate on economies of scale. In sum, microlending and microenterprise

are ineffective in bootstrapping most individuals out of poverty because small-scale

enterprises fail to provide enough financial resources to meet impoverished individuals’

needs (food, and health, and education), microenterprise lending expropriates levels of

value that erode earnings, and microenterprise reinforces poor individuals’ vulnerability

to market forces including market competition and market fluctuations in the price of

supplies and the valuation of goods or services.

Microlending can produce an onerous financial and cultural economy. In India,

average household debt from microfinance lenders almost quintupled in the period from

2004 to 2009 (Gokhale, 2009). The increase in average Indian household debt from

around $27 to $135 constitutes a crushing burden for households that subsist on a few

29

dollars a week. This increase in debt occurred as microlenders seeking profitable returns

flooded into India’s poor regions, creating “credit bubble” in “slum” arenas (Gokhale,

2008: A1).

Microlending in many cases introduces normative controls that are more exacting

than the relatively anonymous demands of a commercial bank. Papa, Auwal, and Singhal

(1997) analyzed how peer-lending model encourages normative discipline, exerting a

kind of “concertive” control over the borrowers, which explains the high repayment.

Ethnographic research reveals that women will incur additional debt from high-interest

and unscrupulous money-lenders in order to meet their peer-lending model based

repayment obligations. High rates of microlending repayment may mask personal

sacrifices and debt obligations incurred. These observations point to the micropolitical

effects of microlending.

Outrage over exorbitant interest rates and onerous normative controls have led to

social tensions in some areas of India flooded with microlending (Gokhale, 2009). Loan

recipients claim that high interest rates “fuel a cycle of indebtedness,” rather than

empowering recipients (A12). Some Islamic leaders in India urge loan recipients to

engage in loan-repayment strikes in response to the strains on family and community life

posed by ballooning debt servitude (Gokhale, 2009; see also Elyachar, 2005). Indian

lenders respond that Muslim clerics repudiating microloans simply oppose the

empowerment of women. Despite such dismissive attempts, concern grows on the

margins of microenterprise discourses that for-profit microlending may pose social risks.

NGO sponsored microlending is typically represented as less self-interested than

private lending. However, the line between non-profit NGOs and for-profit investors

30

blurs as the former pursue partnerships with the latter. Additionally, microlending

financed by NGOs often displace local value orientations and economic priorities in favor

of foreign agendas (Edwards, 2008; Elyachar, 2005; see Vogel, 2006). Ganesh (2007)

found in his analysis of a NGO that local agendas were shaped by distant problem-

solution frames and value orientations, rendering problematic the ideals of grassroot

authenticity. Likewise, Mindry (2001) observed a “transnational politics of virtue” acting

as a mode of power by constituting some (relatively affluent) women in Britain as

“benevolent providers” and others in South Africa as undeserving or “deserving

recipients of development and empowerment” within a NGO poverty-assistance

discourse (1189). The power effects of the moral economy of assistance may be as great

as the rent-seeking priorities of for-profit microlenders.

The Fantasy of Market Transparency, Self-Regulation and Beneficence

Poverty alleviation logics that articulate poverty in relation to individuals’ ability

or willingness to participate in market transactions obscure the role of complex systems

in producing the conditions of possibility for success or failure in globalized, liberalized

developing markets. More specifically, neoliberalism’s simultaneous efforts to combat

poverty while enhancing market competitiveness elide how global markets are

disproportionately shaped by powerful market players. Powerful players, such as hedge

funds, large investment firms, and international banks, have tremendous effects on

commodity markets, currency valuation, and interest rates, overwhelming the

entrepreneurial struggles of individual microenterprises incorporated into national and

global markets.

31

The discourse of microenterprise as the pre-eminent poverty alleviation strategy

obscures significant macro-challenges facing countries because microenterprise reduces

the problems of development to the level of individuals. Take Bangladesh as an

illustration of the limits of microenterprise. Bangladesh faces gross land and resource

inequities, foreign debt, and water pollution problems. In the early part of 2008

Bangladesh’s international debt of $18.8 billion accounted for 37 percent of the nation’s

gross domestic product and 188 percent of total exports (Choudhury, 2008). Additionally,

the World Health Organization reported in 2000 that the country was confronting the

largest mass poisoning of population in a history from poisoned ground water due to

naturally occurring inorganic arsenic (Choudhury, 2008). Approximations suggest that up

to half of the nation’s population is at risk. Water pollution, crippling international debt,

and institutionalized inequalities are problems beyond the poverty alleviating scope of

microenterprise yet in the popular imagination the Grameen Bank has proven most

successful at spearheading “poverty alleviation” in Bangladesh.

Microenterprise and microlending make purchases into neoliberalism’s almost

mystical faith in the capacity of market competition to distribute societal resources most

efficiently. Problems of food scarcity and pricing due to market speculation point to the

limits of market-based logics and solutions for distributing needed societal resources.

According to the Robert Zoellick of the World Bank, many of the world’s poor

populations spend approximately 75 percent of their income on food (“Food Prices,”

2008). Many microenterprise programs are aimed at precisely this population of people.

The relatively small returns available through microenterprises are aimed at improving

the basic living conditions of the world’s poorest, enabling better nutrition and schooling

32

for their children. Yet, high interest rates create debt servitude for microloan recipients,

eroding earnings’ potential. Furthermore, so marginal are microenterprise earnings that

most micro-entrepreneurs are extremely vulnerable to price fluctuations in basic

commodities.

Basic commodities are increasingly subject to financial profiteering as previously

informal local markets are captured, colonized, and transformed by global market

operations. For instance, the price of basic commodities--such as wheat, corn, and rice--is

rarely restricted to local patterns of demand and supply (see Friedmann, 1995). Most

countries today import basic food commodities as previously local agricultural economies

have ceded to the monocultures of export oriented production. Indigenous farmers have

often given up agricultural production and migrated to urban city-ghettos after their

national economies were flooded with low-priced agricultural products produced

elsewhere (see Babb, 2004; Freidmann, 1995; Müller and Patel, 2004). Consequently,

many nations, particularly smaller and poorer nations, have come to rely on food imports.

Even nations that are net exporters of food commodities find the price of these

commodities to be directly influenced by financial speculation (e.g., global futures

markets such as the FOREX). Securities and derivates derived from food commodities

are traded on global markets like any other commodity.

The proliferation of mutual funds and exchange-traded funds tied to commodities

indexes has amplified speculation in basic commodities (Epstein, 2008). The collapse of

the sub-prime mortgage market in the U.S. and its global spillover prompted many

investors to invest in commodity indexes in the first half of 2008 (“Food Prices,” 2008).

One analyst attributed up to 30 percent of the rising prices of food commodities,

33

including rice and wheat, in the spring of 2008 to speculation (Epstein, 2008). In April of

2008 several large U.S. grain exchanges invited grain-market participants to express

concerns about the destabilizing effect of grain speculation in response to grain buyers’

claims that speculation was causing extreme volatility in pricing and that futures trading

was causing market distortions (Davis, 2008).

In April of 2008 the World Bank estimated that global food prices rose 83 percent

over the past three years, while estimating increased pricing across 2008 of 7.4 percent

(Batson, 2008). Rising commodity prices in early of 2008 led to hoarding by farmers in

India and China, exacerbating rising prices. The price of rice, a food staple for much of

the world’s poorest populations, rose 150 percent in 2008 alone (Hookway and Lane,

2008). Food riots erupted in Thailand, Egypt, and Haiti in April of 2008 in response to

concerns about a 48 percent increase in food prices from 2006 (“Food Prices,” 2008). The

United Nations warned of an impending food crisis and rise in abject poverty.

This rise in food prices, in significant part precipitated by global market

speculation, undermined or erased modest gains in income achieved through

microenterprise endeavors. There is a profound but tragic irony in that the most heralded

technology for redressing abject poverty, the global market, is also an instrument capable

of erasing any gains in living standards achieved through microenterprise. Food, the most

basic of commodities, has emerged as an object of intense speculation, rendering the

world’s poor extremely vulnerable to speculators’ whims.

The demand for fiscal austerity compounds the poor’s vulnerability. Economic

crises in the developing world often lead to calls by international lending organizations

and neoliberal activists for further cuts in social-welfare programs, even when crises are

34

precipitated by global speculation. For example, in the Philippines some politicians and

neoliberal bankers used the rice crisis to demand that the government drop subsidies

designed to make rice affordable to the poorest Filipinos. Claims that subsidies “distort

the market” obscured the role of the commodity speculation globally, as well as the role

of private dealers locally who bear responsibility for distributing the subsidized rice

(Hookway and Etter, 2008).

The subsequent collapse of commodity markets in the fall of 2008 did not help

developing nations’ domestic economies or their capacities to feed citizens. Needed

credit to buy is scarce, constraining consumption of imports by developing nations.

Additionally, poor nations that rely on commodity exports for revenue find buyers from

the developed nations are also unable to secure credit to purchase exports such as coffee

(Johnston, 2008). Poverty has increased: Oxfam estimates the economic meltdown of

2008 led to the addition of 119 million people living below the poverty line (Cha and

McCrummen: A1). Worse, the current decline in the value of food futures may

exacerbate food shortages as producers plant less (A1). As of August 2009, speculative

activity in food commodities had resumed in anticipation of food shortages, as illustrated

by this investment article’s title, “The Real Crisis is Food: Beginning of the Bull for

Agriculture” (Summers).

The 2008 fall credit crunch, caused by global deleveraging of debt-based assets

(debt accrued mainly by the world’s wealthy nations), is predicted to have devastating

impact on the world’s poorest populations according to a policy working paper produced

for the World Bank (Ravillion, 2008). In particular, countries dependent upon global

trade, foreign direct investment, and liberalized financial sectors (exposing domestic

35

economies to global capital inflows and outflows) are expected to be most adversely

impacted by the recession. Even those countries that had little direct exposure to the

internationally traded debt-securities face economic risks as stock markets have plunged,

foreign capital has exited (raising domestic interest rates), lending has become difficult to

secure, and foreign debt has ballooned as countries’ debt holdings in foreign currencies

have skyrocketed due to declining valuation of domestic currencies (Landler, 2008).

By early 2009, the world’s most wealthy nations had begun to erect trade barriers

as their domestic economies experienced rapid declines in measurements of gross

domestic products (Faiola, 2008). Protectionist sentiment in wealthy nations is

demonstrated by the “Buy American Campaign,” which U.S. politicians sought to include

in its $819 billion domestic stimulus package. Hypocritically, the powerful industrialized

nations are now instituting precisely those domestic protections they disallowed

developing nations to pursue over the last 3 decades (Miller, 2009: A1). These

protections, coupled with the exodus of capital, could have devastating effects on the

export-oriented production industries in developing nations.

The World Bank has already articulated its response to the crisis and funding for

microlending is an important plank of this response:

The World Bank is calling for developed countries to pledge 0.7 percent

of their stimulus packages to a vulnerability fund for assisting developing

countries that can’t afford bailouts and deficits. The fund’s three priorities

would be: safety nets, infrastructure, and finance for SMEs and

microfinance institutions. The Bank could manage the distribution of the

cash with the UN and the regional development banks, and could use its

36

existing mechanisms to deliver the funds. (my italics,

http://www.worldbank.org/html/extdr/financialcrisis/)

The World Bank’s response to the crisis is designed to combat protectionist policies by

developing nations through the carrot/stick of international trade guarantees that promise

to “cover the payment risk in trade,” which will be financed by the private sector arm of

the World Bank, the International Finance Corporation (IFC)

(http://www.ifc.org/ifcext/about.nsf/Content/8CA0CDB7C3AFEF1B85257515007A1753

?OpenDocument). Since the primary goal of the IFC is to “promote open and competitive

markets in developing countries” and the secondary goal is to “Support companies and

other private sector partners,” it is clear the World Bank is promising assistance under the

conditionality that recipient developing nations adhere to the neoliberal logic and

technologies of government promoted by the IFC.

(http://www.ifc.org/ifcext/about.nsf/Content/Mission).

National assistance from wealthy nations to poor nations also continues to be

dependent upon neoliberal conditionalities. In December of 2008 an editorial titled “US

Aid Should Be Earned” appeared in The New York Times authored by U.S. appointees to

the Millennium Challenge Corporation’s board. The editorial argued U.S. aid should

uphold good governance conditionality. Economic “freedom” was articulated as a

primary principle of good governance in the editorial (Craner, Frist, Hackett, Patricof,

2008).

International assistance therefore remains conditional on adhering to precisely

those neoliberal policies wealthy developed nations are temporarily suspending in order

to redress their imploding national industries. Yet it is precisely these neoliberal

37

programs, policies, and technologies of government that have exposed developing nations

to economic chaos originating in wealthy nations, while rendering developing nations’

export-oriented industries and workers vulnerable to the developed world’s consumption

declines and rapidly erected protectionist tariffs. The market has betrayed the world’s

poorest while state-supported development aid to the poor declines (Macfarquhar, 2008).

Appeals to commercially sponsored microfinance as a technology of government

capable of “empowering” the poor through microenterprise will no doubt increase in the

context of declining state supported assistance and, simultaneously, rising concerns about

the security risks posed by dispossessed, impoverished populations. For instance, a

January 28, 2009 editorial appearing in The Arizona Republic urged “Microloans Can

Empower Poor South of Border” (B4). In January of 2009 the central bank of Nigeria

announced it had licensed 840 microfinance banks as part of a campaign, described by

Nigeria’s President, as "Commercial Microfinance As a Tool For Poverty Alleviation.”

The President explained the program’s timeliness: “because it focuses attention on how

commercial microfinance can be used to alleviate poverty among our people, particularly

the active poor” (http://www.leadershipnigeria.com/news/119/ARTICLE/5850/2009-01-

23.html).

In August of 2009 The Wall Street Journal observed that international investors’

interest in microcredit was growing due to the substantial decline in U.S. equity markets,

despite growing concerns over loan-repayment revolts (Copeland, 2009; Gokhale, 2009).

Given investors concerns about loan-repayment revolts, tightening credit, and increased

risks associated with debt-related funds, financial analysts predict that lenders will

require borrowers to purchase micro-insurance, adding another level of costs for poor

38

borrowers (Terzo, 2008). The fantasy of expropriating value from enterprising, active

poor populations remains intact even in the face of tightening credit and rising interest

rates (“India,” 2008).

Microenterprise, and Microlending as Technologies of Government

The Director of U.S. National Intelligence announced in February of 2009 that

instability in countries across the globe caused by the financial meltdown of primarily

U.S. back derivatives constituted the primary near-term security threat to the U.S. (Pincus

and Warrick, 2009). U.S. officials expressed concerns that growing joblessness in

emerging economies would bolster protectionist policies, undermining commitment to

free-market, pro-Western policies (Schwartz, 2009). The fantasy of a global society

integrated by the capitalist, neoliberal market unravels with the implosion of speculative

capital.

Efforts by international aid organizations and NGOs to coax the developing

world’s commitments to market defined freedoms, empowerments, and responsibilities

will no doubt increase as neoliberal authorities contemplate the specter of rising state

capitalism (e.g., China) and socialism. Hedge funds and other private investment pools,

already called upon (albeit unsuccessfully) to finance the U.S. financial bailout, will also

be prompted to step-up “development” aid in strategically important developing regions.

Domestic catastrophes in developing nations wrought by the collapse of neoliberal

production apparatuses (e.g., export oriented production) will be viewed as failures of

self-government by western, neoliberal authorities. Turmoil and impoverishment will be

represented in the western press as inviting/requiring ever more neoliberal reforms in the

39

name of security while social-welfare regulations and institutions in poorer nations will

be blamed for producing or exacerbating catastrophe (see Klein, 2007). Western powers’

efforts to protect their own economies will be cast as necessary stabilization while

developing nations’ similar efforts will be cast as threatening global security. Ominously,

“security” concerns may prompt U.S. military adventurism to ensure poor populations’

market commitments while, simultaneously, distracting the American public from their

increasingly economic vulnerability.

In November 2008 the Strategic Studies Institute issued a report titled “Known

Unknowns: Uncoventional ‘Strategic Shocks’ in Defense Strategy Development”

authored by Nathan Freier. The report anticipates and develops contingency plans for the

Department of Defense to respond to unconventional, primarily “nonmilitary”

“dangerous future shocks” that “manifest themselves in ways far outside established

defense convention” (vii). The report describes how non-military moves by political-

economic adversaries could limit “American freedom of action” (34). When one reads

this report carefully it becomes clear that its primary objective is to describe risks

resulting from the increasing vulnerability of the neoliberal economic order that has been

predicated upon, and prioritized, U.S. economic and political interests. The report

implicitly warns of imminent economic resistance by BRIC and SCO nations. The report

formulates their economic resistance as a fundamental security threat requiring DoD to

articulate new problem-solution frames for ensuring maintenance of what is

euphemistically described as U.S. “freedom of action” (34).

This report illustrates how resistance to a global economic order is constructed

within U.S. security discourses and politic problem-solution frames. Yet this framework,

40

which is indebted to neoliberal values and policy frameworks, denies growing evidence

that countries that rejected neoliberal liberalization have also escaped the worst ravages

of the global recession. As Nouriel Roubini’s August 5, 2009 review of international

conditions reveal, “developing” countries--such as Brazil and Peru--characterized by

relatively closed economies, stringently regulated banking and capital markets, and

heterogeneous production regimes (as opposed to homogeneous export-oriented regimes)

have emerged relatively unscathed. Likewise, western industrialized nations such as

Norway and France that maintain high levels of public sector employment and social

safety nets have been less impacted than highly (neo)liberalized nations such as the U.S.

and the U.K. These data call into question the security generating capacity of the

neoliberal economic order more generally and the wisdom of financializing strategies that

seek to reduce poverty through debt-empowerment more specifically.

---------------

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