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The Other Financial Crisis: Poor Women, Small Credits, Big Businesses – Article from Christa Wichterich

 

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India is in the midst of a financial crisis that shows striking similarities to the US subprime crisis, both in its origins and the rescue strategies used. Just as the cheap mortgage granted to low-income households in the USA, the microcredits given to poor women in rural areas worked out as financialisation of everyday live and integration of the women into the global financial market with its return-based logic. This jeopardised the social processes and the very objectives at the heart of the initial non-profit microfinance model. The growth of this sector led to an over-supply of microcredits in villages and in turn to the over-indebtedness of women, the collapse of repayments and a capital shortage of the microfinance institutions. What seems at first sight to be a specifically Indian crisis results in fact from the market rationale of growth, overheating, and crisis.

 

The crisis of the microfinance sector caused an astonishing shift in the language and discourse surrounding microcredits. After their positive impact against poverty and women's high repayment morale were praised for over two decades, the concepts of poverty eradication, empowerment or even group solidarity have evaporated completely.

 

It is now common knowledge that at least half of the women use the credit to repay other debts, cope with emergencies, e.g. a surgery, or for consumption, and that they take out new loans to repay the microcredit.

 

Even if often this process enables women to gain recognition and bargaining power at home and with the authorities, there is no doubt since the crash that even the best microcredit system is no substitute for social security and wealth distribution policies. Structural changes to eliminate poverty remain necessary. While the microfinance industry is hoping for its recovery, the debate is only just emerging amongst the Indian public on how to integrate saving and credit granting into social contracts and structures of a solidarity economy. It is crucial that the revenue generated by the poor is not siphoned off from outside but that it stays in local circles to ensure the survival of the population.

 

This article, written by WIDE Executive Committee Member Christa Wichterich, critically reviews Microcredit schemes. The article is now available in English and in German.