Microfinance and Community Development

The most common argument I have come across in the literature and commentary on microfinance is that it is not the panacea or silver bullet for reducing poverty. As my learning has deepened over the past few months of study, I am also too familiar with the common debates explored in research paper after research paper. How does the trend towards commercialization impact the effectiveness of microfinance? Financial sustainability vs Outreach? Why is microfinance not reaching the poorest of poor? Are women really empowered? And so forth.

However, Dr Yaso Nadarajah’s lecture about microfinance in Papua New Guinea has opened up a whole new realm of thought on the topic. Her research and candid account on failed microfinance schemes in PNG offered a perspective which I honestly hadn’t given much thought to, that is, what are the existing forms of production and exchange in the community and what development strategies can be introduced to complement these existing structures?

If we look at microfinance in terms of its stakeholders, the focus is on groups or individuals who are directly impacted, such as The Poor, Women, Microfinance Institutions, The Global South, Loan Recipient Groups etc. And although microfinance is praised for its bottom up approach, Dr Nadarajah’s lecture demonstrated that we often neglect to take into account the community, it’s culture and customs, and the role it plays in the successes and failures of development initiatives. For me, this was a reality check, blindly assuming that a market-based approach to development, like microfinance, will work in all developing contexts where disadvantaged groups like The Poor and Women exist.

Dr Nadarajah also talked about how one of the issues of microfinance in PNG was that there were two knowledge systems unable to talk to each other. On one hand there was the circulation of money as capital, and on the other, customary forms of exchange. For example, Dr Nadarajah mentions that no-one in rural areas dies of hunger, because whatever happens, the subsistence farmers help each other through kinship and that’s a form of exchange. I question how the promotion of self-entrepreneurship through microfinance would affect such exchanges, even potentially damaging relationship within the community. The dilemma here is to find a middle ground so that initiatives like microfinance do not displace existing culture and customs. I think that one of the lessons learnt from the failed schemes in PNG is that prior to implementing a project, it is critical that NGOs and government agencies work with the community to understand not only the cultural context but the existing capabilities which can be built upon.

Another interesting point raised was the issue in transferring the concept of microfinance from one context, that is, South Asia, to another and expecting similar successes. Instead, many attempts to provide financial services to the poor of PNG failed with most projects implemented during the 1980s and 1990s no longer being in existence (James, Nadarajah, Haive and Stead, 2012, p. 357). My initial reaction to this ‘copy and paste’ method was questioning why a better analysis of the geography, infrastructure and political landscape was not undertaken as surely, like any business venture, some form of market sizing would occur to determine suitability. However, reflecting upon Nasarajah’s lecture, it is clear that question which should be asked is ‘What can we learn from these failures?’ and from this perspective we can see that PNG hosts a set of conditions, for example, mistrust of financial institutions, limited physical infrastructure and non-monetized economies, which development initiatives need to complement, rather than disregard. This leaves me to question in what situations is microfinance not the ideal solution? As James, Nadarajah, Haive and Stead suggest, ‘gaining a foothold on the ladder of marketization may not be the answer’ (2012, p. 368) and I think this is something that us development practitioners need to think more carefully about when determining methods of intervention.

References:
James, P., Nadarajah, Y.,  Haive K., & Stead, V. (2012). Sustainable Communities, Sustainable Development, Other Paths for Papua New Guinea. Honolulu: University of Hawaii Press.