The fourth meeting of the AHRC Microfinance Network was held on May 26 at University of Birmingham. The theme of the meeting was empirical research on and experiences of financial exclusion, both in the North and the South, and we were very pleased to have the following distinguished speakers with us on this day: Udo Reifner, Professor of Commercial Law at Hamburg University and Chairman of the European Coalition for Responsible Credit, Lindsey Appleyard, Research Fellow at the Centre for Household Assets and Savings Management (CHASM) at University of Birmingham, Solene Morvant-Roux, Research Fellow at the Institut de Recherches pour le Developpement in France, Malcolm Harper, Emeritus Professor at Cranfield School of Management and Chairman of M-CRIL (Micro-Credit Ratings International Ltd.), and Georges Gloukoviezoff, Independent Researcher on microfinance affiliated with Trinity College Dublin.
Udo Reifner opened the day by giving his view on the causes of the current global financial crisis and how what he calls responsible credit can help avoid similar crises in the future. An important part of what led to the current financial crisis, he suggested, was the exponential growth of the unreal economy – that is, trade in various kinds of financial assets (like debt and shares) only indirectly connected to production. In order to avoid equally devastating crises in the future we need to “build firewalls between real and unreal money”, Reifner suggested, or simply create what he calls sane and responsible credit. The latter is characterised by more cautious and production-focused lending, wider outreach of credit, more transparent credit relations, protective legislation, and increased focus on borrowers’ rights.
Lindsey Appleyard presented her research on the geography of financial exclusion in the US and UK and how Community Development Finance Institutions (CDFIs) tackle such exclusion. Her conclusions were that, although the geographies of financial exlusion as such were rather similar in the two countries, the relevant CDFIs used somewhat different techniques to promote financial inclusion. CDFIs are a rather recent phenomenon in the US and they tend to cater mostly to ethnic minorities there, whereas UK CDFIs have a longer history and tend to focus on women and ex-offenders. Appleyard’s research suggests that American CDFIs generally have lower default rates and an imporant reason for this may be a stronger focus on the rescheduling of loans. On the other hand the fact that UK CDFIs typically function as a ‘lender of last resort’ seems to give them a more focused lending strategy overall.
Solene Morvant-Roux presented a synthesis of empirical research on financial exlusion in the South conducted by herself and colleagues affiliated with her research centre. Her general suggestion was that debt is a very complex phenomenon and we therefore need a plurality of empirical methods to understand it properly. More specifically she related recent research on the social meaning of debt and over-indebtedness in Latin America and Africa, which suggests that people in different parts of the world both define and relate to over-indebtedness in quite different ways. Whereas over-indebtedness in some places is heavily stigmatised and may lead to suicide, for instance, in other cultures people don’t seem to mind it at all. The social meaning of debt cannot be captured by mechanistic quantitative studies but needs attention from in-the-field sociologists.
The speaker with the most first-hand knowledge of microfinance of the day was Malcolm Harper, who is a veteran in the field of financial inclusion and microenterprise. Harper gave his personal reflections on the ethical issues made salient by current developments in the microfinance industry. Although a lot of fancy words often are used to describe this industry – like “reasonable and fair”, “double bottom line” and “CSR” - Harper expressed his worried about the trend towards seeing microfinance as just another business. Recurring problems are over-indebtedness, “kneecap breaking”, exhorbitant interest rates, and deceitful and aggressive lending. While not all of these problems may be exactly as bad as critics argue – for instance Harper suggested that there has been too much focus on interest rates, probably because they are quantifiable – the microfinance industry surely raises ethical issues. Most of these basically break down to the question of whether to put most ethical emphasis on good intentions or on good results.
Finally, Georges Gloukoviezoff presented his research on financial exclusion and inclusion in the North, especially in France. Whereas it currently is politically correct to argue for a stronger microfinance industry in France – because it is seen roughly as a reversed form of colonialism – Gloukoviezoff argued that the institutional landscape really is rather different across Europe and so simply copying Southern solutions straight off will not work. Furthermore the political aspect of increased microfinance activity in the North tends to be neglected. Before we implement the Southern solution here we need to ask ourselves what kind of society we want; what the role of the private sector versus the role of the welfare state should be; and what to think of issues like quality of work and level of wages. Gloukoviezoff’s own vision was a financial landscape characterised by the logic of reciprocity.
