Underlying philosophy of Microfinance

[SteelE01 at newschool.edu]

Hello all:

I am writing a paper on microfinance approaches or methodologies and
their potential for reducing poverty within a US urban context. I have
some detailed questions that need some answers, I would appreciate any
advice or answers.

Does the "FINCA" village banking model allow members of the bank to
self-select other borrowers from the community? Does that mean that
anyone in the village can become a member? How does FINCA define a
"village or community?" Is it based solely on geography?

In the "Grameen model" or solidarity lending, it appears that the
organization itself screens entire villages or communities to determine
who can qualify to borrow based on their level of poverty. However, in
the "village banking model" there is no organizational screening of
potential borrowers by level of poverty. Are my assumptions generally
correct?

If my assumptions are correct regarding both "models" then it is okay
to conclude that the problem that "microfinance or microenterprise
development" is addressing is not poverty or oppression (of
disadvantaged groups), but gaining access to credit, savings, and
insurance to those who have previously been denied (whether they are
poor women or minorities).

Do you think the underlying philosophy of microenterprise development
is the cause of poverty primarily due to market failures such as denial
of credit & savings (no collateral or lack of human capital) not
structural problems (like discrimination, sexism, and other forms of
systematic oppression)?

Thank you for your help!
Take care,
Eric



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[Holland6 at aol.com]

In a message dated 3/1/99 9:15:04 PM Eastern Standard Time,
SteelE01@newschool.edu writes:

<< Do you think the underlying philosophy of microenterprise development
is the cause of poverty primarily due to market failures such as denial
of credit & savings (no collateral or lack of human capital) not
structural problems (like discrimination, sexism, and other forms of
systematic oppression)?

Thank you for your help!
Take care,
Eric >>

I'd have to say it would be both, although more clear meanings of the terms
"market failures" and "systematic oppression" must be defined. "Market
failures" sounds too much like an invisible force that cannot be controlled.
Rather, markets are purposefully guided and determined by people--often elite
investors--who make investment decisions based on perceived risks and
opportunities. Often, risk measurements are quite subjective. It depends on
who sets the risk parameters and what type of return one is seeking (social,
financial, or both).

"Systematic oppression" sounds a lot like a conspiracy theory is at work,
which it may be (after all, the U.S. engaged in a civil war over the
oppressive system of slavery). But because systematic oppression is harder to
prove than the subjective decisions of one person, reliable data sources must
be used.

Here in the U.S. public data disclosed by financial institutions showed that
many banks and thrifts were systematically redlining poor and minority
communities. I'm specifically talking about the Home Mortgage Disclosure Act
(HMDA) which requires financial institutions to disclose where they make home
mortgage loans, by census tract, to whom, by race, income, and gender of
applicant, and what type of mortgage loan. Through HMDA and the Community
Reinvestment Act (CRA), community based organizations have been able to make a
strong case for bank redlining in low-income and minority neighborhoods. The
results have been increased bank lending and participation in underserved
neighborhoods.

But HMDA and CRA helped identify one specific problem--lack of bank investment
in underserved communities--and does not offer specific solutions, i.e. jobs,
credit, skills development, and technical assistance. Those solutions are
still being worked out by the multitude of organizations and institutions
working daily in poor communities.
-Dan Holland
holland6@aol.com


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