By Florent Bédécarrats
Passage au crible n°8
FOROLAC (Latin American and Caribbean Forum on Rural Finance) brings together roughly 350 microfinance institutions (MFIs) that together serve over 2.5 million users on the continent. In partnership with the Brazilian government, FOROLAC organized a seminar in December 2009 entitled Family farming, food sovereignty and rural financial systems: challenges and opportunities during crisis. Six hundred representatives of NGOs, social movements, governments, public banks, cooperatives and private companies participated in this international event.
> Historical background
> Theoretical framework
> Analysis
> References
Following the Second World War and the independence of numerous ex-colonies, many developing countries set up state-owned banks to finance development. However, many of these institutions proved to be dysfunctional, plagued by clientelistic practices. Governments were forced to recapitalize their development banks on a regular basis, ultimately exacerbating deficits and debt. During the 1982 financial crisis , the IFIs (International Financial Institutions) – resort lenders – had to bail out countries that had suspended payments, and imposed a series of conditionalities, including, notably, the liberalization of financial systems, reduction of public expenditure and the dismantling of state-owned development banks.
Microfinance was deployed to fill the void left by these structural adjustment policies. Its expansion was led by specialized organizations that gradually diversified their product mix, offering savings and insurance as well as international and national transfers. By the mid 1990s, international donors supporting the sector began to emphasize microfinance’s financial sustainability. They instructed MFIs not only to cover their costs, but generate profits in order to wean themselves from subsidies and attract private investors. This resulted in a growing number of microfinance NGOs transforming into private companies or even banks; at the same time, savings and credit cooperatives were marginalized.
This model was officially sanctioned in 2006 with the designation of the Nobel Peace Prize to Muhammad Yunus and the Grameen Bank, and other international distinctions to microfinance. The symbolic aura that came with these distinctions, however, became a risk for the sector. Criticism mounted steadily, fed by abusive practices and staggering profits of select MFIs. In several Latin American countries, like Bolivia, Equator and Nicaragua, new socialist governments aggressively opposed microfinance and tried to nationalize institutions or replace them with state-owned banks.
1. Norms and regulation in microfinance. By claiming to be a development tool, at the same time it submits to market rules, microfinance blurs the frontier between social and business objectives and the public and private sectors. Although it has been championed by transnational players such as NGOs, donor agencies and investors, microfinance practices are intrinsically local. Like any retail financial activity, they are most often managed and strictly regulated at the national level. This hybridity fosters a governance model based on norms whose benchmarks generally defined within international fora.
2. Privatization of public development policies. Over the last three decades, the strategies of development actors have been influenced by the neo-liberal paradigm. Developing countries were incited by IFIs to limit their role in agricultural policies and financing to one of facilitator, in order to encourage free and competitive markets. Direct intervention of government agencies was deemed inefficient and minimized to the benefit of private operators such as NGOs and businesses.
The recent financial and food crises are calling into question the current development paradigm. In agriculture, tensions stem less from insufficient world production than unequal distribution of value added. Indeed, commercial liberalization has put undercapitalized peasants (41% of the world’s population) in direct competition with agro-industry. Under these conditions, international prices settle in such a way that only 15% of the highest-yielding producers earn a profit. This asymmetry is leading to a pauperization of rural populations who represent 75% of the people malnourished. In other words, even as the FAO (Food and Agriculture Organization of the United Nations), IFAD (International Fund for Agricultural Development) and World Bank are making agriculture once again a development priority, controversy is growing between those who would continue to invest in the agro-industrial model and those who would like to enhance the role of family farms. The Latin American socialist governments, who reached power with the support of grass-roots peasant movements, tend to support the second alternative.
Microfinance struggles to serve small farmers who face considerable hazards. Indeed, they often lack guarantees due to income flows that are too irregular and small to absorb the structurally high interest rates of MFIs. For all these reasons, microfinance often concentrates on urban areas, funding trade and service-based microenterprise set up by rural migrants. The market’s failure to foster rural development calls into question the image of microfinance put forth by the media. Moreover, it provides fodder for the discourse of socialist governments who regularly threaten to take control of MFIs or force them to drastically cut their interest rates.
The MFIs themselves strengthen corporative networks that pursue diverse strategies. For example, the most commercial among them make a point to establish their legal status and obtain support from international institutions or other significant economic actors. The more social and rural-focused organizations affiliated with FOROLAC aim to increase their credibility by forging partnerships with peasant organizations. To do this, they are developing rural and agricultural programs and looking to create alliances with state-owned development banks. In this regard, the seminar organized in Brazil by FOROLAC takes on considerable importance. Indeed, in a sector where relationships between practitioners and governments are often wrought with tension, the event established a precedent by bridge-building with Lula’s government in view of developing a referential model.
Guérin Isabelle, Lapenu Cécile, Doligez François (Éds.), La Microfinance est-elle socialement responsable ?, Revue Tiers-Monde, (197), Janv.-mars 2009.
Mazoyer Marcel, Roudart Laurence, La Fracture agricole et alimentaire mondiale : nourrir l’humanité aujourd’hui et demain, Paris, Éditions Universalis, 2006.
Trivelli Carolina, Venero Hildegardi, Banca de desarrollo para el agro: experiencias en curso en América Latina, Lima, Instituto de Estudios Peruanos, 2007
