Reflections on Microfinance and the Care Economy

/ / Rethinking Macroeconomics

With rollback of the developmental state under the neoliberal policy regime, financial inclusion has come to be adopted as a developmental strategy. Micro-credit schemes, which were initially promoted as tools for gender-empowerment and poverty alleviation, have in the process become increasingly absorbed within the sphere of mainstream private finance. The relatively low rates of default in this sector have attracted an influx of funds from profit oriented financial institutions. The focus has shifted from the  sustainability of income generation for borrowers to that of the profitability of the lending institution. Given the higher transaction costs associated with small loans and extending outreach to marginal low income households this change of focus has undermined the social mission of microfinance to reach the poorest and most neglected households.  Social priorities are being subordinated to commercial considerations.

The impact of micro-credit on both poverty and gender relations has been extensively studied. However, the implications of the growth of micro-credit for the care-economy, and their repercussions in the wider macro-economy have received less analytical attention. The neglect of the implication microfinance for the provision of care labor is surprising in the light of the original mission of microfinance, which targeted the female worker in rural areas in developing countries, with less access to earning opportunities and disproportionate responsibility for the care work. The increase in market labor implies a claim on the time of working women. In the absence of social provisioning of care, this claim on the labor time of women could lead to a squeeze on the time of rural working women

A simple two-sector post-Keynesian model allows the integration of the role of demand and care work into the analysis of microfinance. This investigation demonstrates is that micro financed enterprises face a structural constraint on the demand side from overall macroeconomic conditions, and on the supply side from the responsibility for unpaid care work borne by the female beneficiary of microfinance. Paradoxically, microfinance has been espoused as a developmental strategy in precisely the period when the role of the developmental state has been eclipsed, and cutbacks in public spending on care provisioning have been prescribed.

Slowdowns in the wider economy, would lower the demand for the output of the microfinance sector, and hence undermine the viability of these enterprises. The capacity of the microfinance sector to provide the impetus to broader demand growth in the economy is likely to be more limited in the absence of public policies to stimulate demand and investment. The capacity of microfinance to alleviate poverty and lift incomes is thus dependent on conditions in, and linkages with the wider macroeconomy. A vibrant and stable macroeconomy is the only sustainable basis for a stable microfinance sector.

We also draw attention to some of the complexities of the impact of microfinance on the provision of care. The home-based nature of microenterprises perpetuates the gendered asymmetries of care responsibility within the household. While higher female earnings can alleviate the burden of care by making care work more effective and by enabling the market to substitute for unpaid care, at the lower income levels and in a context of the inadequate social provision of care the gendered responsibility for care remains a critical constraint for the female beneficiary of micro-finance.

Some clear policy prescriptions emerge from this investigation. Donors and development agencies have been encouraging raising interest rates in order to ensure the viability and profitability of microfinance lenders.  Our model suggests that high-interest rates will actually undermine the scope of microfinance as a path to better and sustainable livelihoods for poor households in rural areas. Higher interest rates in this sector impose a higher burden on the labor time of the female worker with a  consequent squeeze of care-labor or the own labor time.

More significantly, the analysis suggests that microfinance cannot be an effective path to poverty alleviation or gender empowerment unless it is backed by investment in the social provisioning of care.  The success of microfinance as a developmental strategy depends on wider policies that support demand and the social provision of care.  There is, in the final analysis, no substitute for a developmental strategy based on public investment in support of both job creation and social provision of care.

 

This blog was authored by Ramaa Vasudevan and Srinivas Raghavendran are both expert researchers for the Care Work and the Economy Project within the Rethinking Macroeconomics working group. To learn more read the CWE-GAM working paper upon which this blog was based here.

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