Two cows... or three?
GREG PIRIE | SUNDAY, AUGUST 28, 2011 AT 10:20AM
It’s when I find myself laying awake at night that I know the day’s reading has had an impact. Last night it was Milford Bateman’s pre-publication commentary on his new book Confronting Microfinance: Undermining Sustainable Development.
Written with a bevy of additional authors, Milford’s book appears to advance the argument that microfinance has been imposed upon communities in the western Balkans as part of the post-Yugoslavia transformation into a market economy, and that in the process has actively contributed to the failure of those economies to thrive and prosper.
Having lived and worked as an implementer and technical supporter of MFIs in the region for a decade, I have a strong interest in Milford’s thesis. Locating the Balkan experience in the broader context of the microfinance sector’s current angst about its apparent lack of effectiveness, the book aims to explain how it has gone so horribly wrong in the region.
A focus upon the “simplest of microenterprises” in favour of the more formalised SME sector, both urban and agricultural, has, they argue, resulted in a sort of ‘dumbing down’ of economic activity. Instead of building enterprises that fill sustainable niches in the economy — formally contributing as taxpayers and creators of jobs – microfinance initiatives have stimulated the proliferation of “poor women supplying petty items and services to already vastly over-supplied local markets”. As a result, local economies have been dominated by informal – i.e. non-taxpaying – microenterprises dependent upon short-term consumer demand and with no prospect of creating lasting and growing employment.
Embarrassingly, Milford quotes the ‘two-cow farms’ approach in Croatia — a microenterprise support strategy adopted by, amongst others, the country office of the multinational agency for which I worked at the time. I recall thinking the idea of negotiating a tripartite agreement between a number of smallholding dairy farmers, the local milk processor, and our credit-providing MF operation was a practical arrangement.
In hindsight, I accept Milford’s critique that the absence of a coordinated and thoughtful analysis of the likely impact of such a strategy on the long-term recovery of the dairy industry, and of the specific dynamics of local demand and supply, has been a factor in the industry remaining dominated by smallholding farmers – with all the economic inefficiencies that implies in the European context.
Milford and his fellow authors appear to be arguing that the preferable macroeconomic strategy would have substituted investment in the SME sector for all the varied microenterprise support efforts. I can’t argue with this premise, but I’m left wondering — the cause of my sleeplessness — about the relevance of providing savings opportunities for the clients of MFIs.
I believe an integral element in the market economy (and in other variations) is the individual’s building of financial assets. In any cash-based system, access to a facility to store one’s savings, whether short or long term, is essential. In a market where, for a variety of reasons, the mainstream banking sector is not available to a significant number of people — not all of whom are SME operators — the alternatives appear to be mattresses, socks, or MFIs. And if MFIs, where are they supposed to invest these funds if not in the microenterprises of clients? Or should MFIs be the intermediaries between the saving poor and the SME sector? And considering the number and variety of sponsors of MFIs, how on earth are we to evolve any form of coherent and consistent approach to such matters?
After one sleepless night, I wonder how I’ll respond when I receive the E-version of the whole book in September!