Financial inclusion has been adopted as a developmental strategy with the roll-back of the developmental state under the neoliberal policy regime. As a result, mainstream private finance has utilized microcredit schemes with increasing frequency, even though such schemes initially were touted almost exclusively as tools for gender-empowerment and poverty alleviation. The relatively low rates of default in this sector have attracted an influx of funds from profit-oriented financial institutions, shifting focus 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 has undermined the social mission of microfinance to reach the poorest and most neglected households. It appears social priorities are being subordinated to commercial considerations.
The impact of microcredit on both poverty and gender relations has been studied extensively. Yet the implications of microcredit growth for the care-economy, and their repercussions in the wider macro-economy, have received much less analytical attention. This neglect of care-labor provision in particular is surprising given that microfinance originally targeted female workers in rural areas in developing countries with less access to earning opportunities and disproportionate responsibility for 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 likely could lead to a squeeze on the time of rural working women.
We propose a simple two sector post-Keynesian model to integrate the role of demand and care work into the analysis of microfinance. This investigation demonstrates how micro-financed enterprises face a structural constraint on the demand-side from overall macroeconomic conditions. They likewise face a constraint 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.
Meanwhile, slowdowns in the wider economy lower the demand for the output of the microfinance sector, undermining the viability of these enterprises. The capacity of the microfinance sector to provide the impetus to broader demand growth in the economy therefore 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 for the provision of care. The home-based nature of microenterprise 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, the gendered responsibility for care remains a critical constraint for the female beneficiary of microfinance at the lower income levels and in the context of inadequate social provision of care.
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. However, our model suggests that high interest rates will 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 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. Ultimately, there is no substitute for a developmental strategy based on public investment in support of both job creation and social provision of care.