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Poverty Capital: Microfinance and the Making of Development ReviewThis monograph by Ananya Roy is a critical look at the range of institutions that have evolved to profit from poverty - each with their own vision and version of it. It has become a big business for wide ranging governmental and non-governmental organization that include imperial and international power brokers, banking and financial institutions, intelligence organization, evangelists, and of course the sharks that smell easy money. The basic formula is simple: In most cases, the initial risk is borne by the good-hearted donors, and then subsidized or passed on to the government agencies in one form or the other. The managers make the profit from the money raised as charity or on 2% interest rate is the loaned out to the poor at 12 to 96% yearly interest rate. Charges of predatory lending practices are not uncommon. In short, what started as microlending has been institutionalized for microcredit, microbanking, village banking, microfinancing, and other forms of profit-making enterprises.Hardly anybody can remain unmoved by the glossy photos, heart-warming narratives, and sound-bites of efficiency offered by organizations that manage poverty. They do not tell the whole story as I discovered during my visits to some of these organizations that I had supported. After listening to the business models of the poverty experts in the five star hotels, now I am not a supporter of such groups. They speak of poverty but not for the poor. When and what is said depends very much about the motives that are nearly impossible to untangle. Such messages are very competently articulated in this critical monograph.
The basic issues of poverty are lost in the complex portrayals and models. About three decades ago Yunus of Bangladesh articulated that the poor can realize their economic potential with micro-credit. A loan of about one hundred dollars to a poor woman can provide a source of livelihood and the extra income is reinvested by her in the welfare of the family. From such humble but clearly articulated beginnings the poverty alleviation has become a multibillion dollar business - reaching almost a trillion by some counts. Numerous models have emerged in the guise of micro-financing, micro-banking, and self-help by capitalizing on the savings and financial services. The trend is clearly towards recouping the cost of the investor's money at a decent rate of return.
A major shortcoming of such methods is their focus on the market and banking mechanisms to create value. The fiasco of failure of such models as admitted by Allan Greenspan brought down the global economies to its knees. The snake oil of this failed model is now being sold to the poor and innocents.
The history of human prosperity suggests that value is created by technologies coupled with social and economic awareness in the local context of the people they serve. As is clear from this book and other accounts there are very few organizations with such a focus. Meanwhile, a desirable business model for sustainability should use local capital. Locally distributed interest would create local jobs - rather than the managers who live in the big cities. Of course beyond that the value created locally (product or service) may go out.
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