Microcredit Programmes- A celebrated social security policy?

Introduction:
Changing Orientations on Social Security Policy
Dimensions of Neoliberalism
Neoliberal Policies, Rising Inequality and Poverty
Who are then the ‘poor’?
Rationale of Social Security Policies within Neoliberal State
Microcredit: Institutionalised Model for Providing Social Security
Access to Credit: Constraints
Public-Private Partnership Model
Review of Literature on Microcredit
Microcredit Programmes as a Neoliberal Programme
Summary

Introduction:

This blog seeks to analyze microcredit programs as a leading illustration of social security measures implemented and institutionalized by a neoliberal state, within the prevailing paradigm of a global economy. The blog places the discussion of microlending in the context of the institutionalization of a neoliberal economic paradigm and the broader conversation about globalization. Such an economic structure has an impact on the state's function but also causes significant paradigm shifts in the way the state views the world. Additionally, it results in the weakening of a number of social security policies put forth by a welfare state that are essential to eradicating poverty. Microfinance is currently being justified as a social security program with the claim that it combats poverty by integrating the underprivileged into the financial system. Therefore, the neoliberal globalization model is firmly anchored within the microfinance as a social security model.

Changing Orientations on Social Security Policy

Neoliberalism has become the dominant economic paradigm as a result of globalization, which also shifts the role of the state, elevates the market as the driving force behind society, and weakens social security and welfare policies. Within this paradigm, microfinance has emerged as a leading illustration of the provision of social security to the underprivileged based on a public-private partnership.

A political-economic theory known as neoliberalism aims to eliminate the "welfare state" and establish the undisputed dominance of the markets. Steger and Roy (2010) contend that the neo-liberals shared a set of political and ideological tenets devoted to the global dissemination of an economic model that placed a premium on free markets and free trade. Neoliberals have argued that burdensome regulations, excessive public spending, and high tariff barriers to international trade have been to blame for the development of conditions that have resulted in high inflation and subpar economic growth, and that these factors continue to be major barriers to successful economic development in the global South. A neoliberal development agenda has been framed as a result, with a focus on so-called structural adjustment programs and international free-trade agreements. In exchange for the desperately needed loans, strong economic institutions like the International Monetary Fund and the World Bank forced their neoliberal agenda on highly indebted developing nations.

The very foundations of social security and welfare have been attacked by neoliberal policy. Job security, social security, and welfare benefits have come under heavy attack ever since the neoliberal agenda started to gain traction. Cuts to welfare benefits have been made in both developed and developing nations, saving many lower-income families from going hungry. Hensman (2011) contends that the global financial crisis of 2008 brought the issue of safety nets to a critical point. Given that tens of thousands of informal workers were losing their jobs while the wages of others were being driven to starvation levels, the neoliberal assumption that the informal sector could act as a safety net for the unemployed grew increasingly absurd. Given that they had migrated to urban areas because they could not have survived in their villages in the first place, the idea that these workers could have found a living there was equally absurd (Bremen 2009, cited in Hensman 2011).

Dimensions of Neoliberalism

Neoliberalism has three key aspects: it is an ideology, a way of running the country, and a set of policies.

Consumerist free market ideology: The codifiers of neoliberalism are members of the world's power elites, including state politicians, bureaucrats, corporate lobbyists, managers and executives of major transnational corporations, and influential journalists. As the leading proponents of neoliberalism, they inundate the public discourse with idealized depictions of a consumerist, free market society. The tenets of free-market capitalism, including transnational corporations, offshore financial centers, international trade and financial markets, and the free movement of people and goods, are at the foundation of today's interconnected global economy.

Neoliberal governance is based on entrepreneurial principles like competition, self-interest, and decentralization. It encourages a devolution of power from the center state to smaller, localized units and the empowerment of the individual. According to this ideology, a good government should be modeled after a self-regulatory free market. Neoliberal governance redefines people as "customers" or "clients," and it pushes officials to develop an "entrepreneurial" mindset. The goal of this type of governance model is to reduce "government waste" and improve the effectiveness, efficiency, and accountability of the administrative process.

As a set of three core policies, it consists of deregulating the economy, liberalizing trade and industry, and privatizing state-owned businesses. In this context, some of the policy measures include drastic budget cuts, a reduction in social welfare services and programs, the substitution of workfare for welfare, the decentralization of government, and anti-unionization campaigns in newly developed urban commercial areas. All of this is done in the name of increasing productivity and labor flexibility, regional and global integration of national economies, and the development of new political institutions, think tanks, and political practices that will perpetuate the neoliberal paradigm.

Neoliberal Policies, Rising Inequality and Poverty

According to neoliberal development, once governmental regulation and control of economic activities are relaxed in favor of market forces, there will be an equitable distribution of wealth among the population. Increased economic growth, according to proponents, will benefit the entire country and eventually filter down to the lowest socioeconomic groups in those societies. According to Steger and Roy (2010), Bhagwati (1993), Ahluwalia and Little (1998), and others, India's understandable reforms have resulted in massive economic growth, exchange rate stability, and appreciable increases in foreign direct investment. They think that with greater and more efficient resource use, agriculture will become more competitive and efficient.

In spite of these justifications, a large body of empirical research indicates that the structural adjustment programmes (SAPs) of the IMF and the World Bank have resulted in economic hardship (Goldberg and Pavenik 2003; Hilson and Potter 2005; cited in Ganguly-Scrase and Scrase 2011). The downside of neoliberal reforms is that they have widened the wealth gap and left nations more vulnerable to the devastation of the current world financial crisis. It is abundantly clear that economic growth has not necessarily resulted in an equitable distribution of wealth among populations, but rather has caused inequality to increase.

Who are then the ‘poor’?

One must acknowledge that certain castes, classes, races, ethnicities, sexual orientations, and genders experience discrimination as a result of their disadvantageous positions within the social structure, and as a result, make up the majority of poverty structures. One must also acknowledge that poverty is a gendered experience. The ideal "flexible" worker in the new global economy is now a woman. This suggests that it's because they're willing to work in lower-paying jobs with little job security and bargaining power where they must be flexible and obedient to family obligations. In spite of the fact that poverty affects households as a whole, women experience a disproportionate amount of hardship when trying to manage household production and consumption in the face of rising scarcity due to the gendered labor and caretaking roles that they must take on. For women, poverty therefore encompasses more than just a lack of financial resources and material goods; it also refers to social exclusion, a lack of power, and an unequal distribution of resources. In a neoliberal social, economic, and political state where the support structures are absent or are put in place within the framework of an argument for individual efficiency, such exclusion is made worse. As a result, poverty is no longer a problem of structural inequality but rather a problem of personal inefficiency. Thus, the neoliberal development agenda ignores the existing power structures in the community. Additionally, the preference for concepts of "social capital" ignores power and the local population, as the latter is now primarily seen and acknowledged as economic rational consumers (Corbridge and Harris 2001; Ganguly-Scrase and Scrase 2011).

Rationale of Social Security Policies within Neoliberal State

The arguments made by Ferguson (2007), who examined various social security policies in neoliberal South Africa, are crucial to understanding how social security policies created by a neoliberal government should be evaluated. According to Ferguson (2007), evaluating the policies requires extreme caution. The reason for this is that it is widely believed that all social security policies are withdrawn in neoliberal states. Actually, Ferguson claims, this is not the case. He claims that while social security policies do exist, they are pro-poor and pro-market. This is possible because the neoliberal model's social security policies are framed in terms of individual market efficiency and entrepreneurial spirit, which is how this is possible. Since widespread destitution has been brought on by economic collapse and state "failure," programs that offer security in the form of pension or unemployment benefits are therefore essential for the survival of millions of people. The core issue is the justification used to project the policies. The social security policies incorporate pro-market ideals that are couched in pro-poor language. So what justifications are there?

First up is the justification for "investing in human capital.". Social spending is reframed as "investing" in a specific type of "capital" in the language of social security policies. In other words, the investment is not for the "welfare" of the poor. Investments should be made productively, according to logic.

The second argument is that giving the poor financial support would empower them to take the necessary risks to escape the cycle of poverty. The poor can act like proper neoliberal subjects by taking risks and being entrepreneurs with the help of income support.

The attempt to "normalize" the exploitative market conditions is the third concept that supports the neoliberal agenda. The argument disapproves of formal employment by claiming that the current market situation, which includes high unemployment rates, declining incomes, and the expansion of the informal sector and employment, is the norm. The norm will be informal employment, so in order for the poor to be productive, they will need to start their own businesses in the "informal domain" to support themselves. The social security benefit is to be viewed as a way to boost production through entrepreneurial activity, not as a temporary relief. So, informality is accepted and celebrated in the current situation.

In the modern era, the justification for social security for the poor is couched within pro-market and proneoliberal domains and projected as pro-poor. The shift in the conversation about poverty is what has led to the widespread acceptance of policies. Prior to the neoliberal ideology, poverty was seen as a manifestation of structural inequality. Now, it is seen as a result of an individual's failure to realize their full potential. Microfinance has been given legitimacy as "the" social security measure in a neoliberal social, economic, and political model of governance within this context. In this setting, the promise of easy credit with no collateral made by microfinance appears to be a crucial social security policy within the neoliberal discourse. They think that by granting credit, microfinance will help the poor invest their money, grow successful businesses, and gradually escape poverty.

Microcredit: Institutionalised Model for Providing Social Security

Thus, in recent years, many regions of the world have turned to the idea of microfinance as a key development tool. Credits/loans, savings, insurance, transfer services, and other financial products geared toward clients with limited financial resources are all referred to as microfinance. The term "microcredit," which is frequently used, refers to small loans given primarily by the private sector, which includes NGOs. The disbursement is under the control of private sector organizations, who also set the terms and conditions for each loan. Statistics on microcredit show that it has a significant global reach among poor women. According to the current consensus, which is aggressively promoted by major development organizations like the World Bank, USAID, and DIFD, microfinance-based programs are the single most effective development intervention that can be universally adopted. This vision emphasizes credit as the most effective means of eradicating poverty (Kalpana 2004).

The Self-Help Group Bank Linkage Programme (SLBP) and the Microfinance Institution model (MFI) are two models that have been supported by the Indian government's microcredit programs since they were first introduced in 1992. Under the direction of the National Bank for Agriculture and Rural Development (NABARD), the SLBP program is administered. The program is affiliated with several organizations in India, including SEWA, Annapurna Mahila Mandal, and Working Women's Forum, all of which have their roots in the history of unionization and the Indian Women's Movement.

The informal sector has gained "legitimacy" because more than 90% of women employees work there. The key to ensuring this sector's growth is self-employment, and ventures based on self-employment require support in the form of initial funding as capital to be successful. Women's organizations have noted credit as a significant barrier when assisting the poor in general and women workers in the informal sector in particular. One can detect pressure on the state and non-governmental organizations to form groups for the purpose of providing credit for women after the 1980s. The microfinance movement has been referred to as this.

Access to Credit: Constraints

What are the constraints that the poor face with regard to accessing finance in developing countries? The constraints in accessing credit include some of the following:

1. It is argued that that the poor as a category, is a high risk, high cost proposition, which makes banks wary of lending to the poor,
2. The poor are mostly employed in the informal or unorganised sector – low paying, temporary, insecure jobs, and high working hours which do not lend them credibility.
3. Uncertainty about the earnings of the poor lead to uncertainty regarding their repayment of the loan amount leading to default
4. The poor have irregular and volatile income and expenditure streams which make them a major debt risk

The credit restrictions faced by the poor demonstrate how poverty, insecurity, and vulnerability are interconnected ideas, and how any intervention to alleviate poverty should be able to address the rising insecurity and vulnerability faced by the poor. Traditional poverty measures have consistently failed to address the poor's insecurity and vulnerability (Kabeer 2010), despite capturing their state of deprivation. Furthermore, these restrictions have become more severe for poor women because they are viewed as being less creditworthy.

Public-Private Partnership Model

What has emerged is the public-private partnership model in light of the state's failure to address the needs of the populace for social security and the general socioeconomic framework of neoliberalism. What is the reasoning behind this model?

The model is based on the idea that while the government is ineffective and corrupt, non-governmental organizations and corporate entities are not only effective but also ethical. This demonstrates the need for developing model public-private partnerships where non-governmental organizations and corporate entities collaborate with the government through Corporate Social Responsibilities (CSR) initiatives, or where they independently begin giving citizens access to vital services like credit, water, agricultural extension programs, and health care. The dual logic, on which this model is based, equates private organization with efficiency and the state with inefficiency.

Two crucial effects result from such a policy. It first begins to view "citizens" as clients and consumers, and it also erodes accountability. This suggests that in a neoliberal state, it is impossible to hold non-state actors who provide access to services accountable to the general populace. This alters how the citizenship discourse is organized. Microfinance is one example of this "celebrated" private-public partnership model. The poor can access microfinance services from public and private organizations, including NGOs and banking firms, with varying degrees of interdependence.

Making the poor responsible for their circumstances underpins the microfinance discourse. It is based on the idea that welfare programs that offer resources without making the "poor" work for them are ineffective at addressing poverty; instead, one must hold the poor responsible for their situation. The proponents of microfinance contend that because they focus on giving the poor access to assets, these programs not only effectively combat poverty but also help the poor combat insecurity and vulnerability. Such a model establishes a viewpoint that the poor are accountable for their own poverty by placing the burden of eradicating it on the poor. If giving them credit does not enable them to escape the cycle of poverty, then the poor should be held responsible. As a result, poverty is reduced to a "solely individual enterprise," as no mention is made of the structural causes of poverty.

Review of Literature on Microcredit

There are two trends in the existing microcredit literature. One viewpoint gives the program a favorable evaluation and emphasizes how important it is for reducing poverty and empowering women. Women's empowerment has not actually been a result of microcredit programs, according to the second argument made by feminists, and the problem is still not fully resolved.

In the words of the President of the World Bank, James Wolfsensohn:

... microcredit programmes have brought the vibrancy of the market economy to the poorest villages and people of the world. This business approach to the alleviation of poverty has allowed millions of individuals to work their way out of poverty with dignity. (Microcredit Summit 1997, cited in Irmi Hanak 2000: 313)

The speech's main idea is "the business approach to the alleviation of poverty.". This situates the claim that the pro-poor social security policy that is envisioned in microcredit is very much a pro-market strategy, intended to integrate the marginalized poor women into the market on unfavorable terms and conditions, very well. 2005 was designated as the Year of Microcredit by the UN. In order to promote and facilitate the expansion of the program, this resulted in significant investments being made in this field in the form of grants, projects, conferences, workshops, and many other initiatives. Muhammad Yunus' receipt of the Nobel Peace Prize in 2006 for the Grameen Bank of Bangladesh served as further validation of this claim. The Nobel Foundation defended this choice by arguing that, in the long run, eradicating poverty through microcredit would guarantee world peace. There are two very clear stances in academic research on microfinance. One group of academics believes the program will reduce poverty and promote women's empowerment. Others contest the assertions made above and claim that such intervention would be extremely expensive.

Summary

Market-based solutions are typical in neoliberal states, as discussed in the paragraphs above. The goal is to organize "people" in the market so that they can be controlled. The establishment of self-help groups for women to access microcredit is a pertinent example in this regard. Because they are "efficient managers and diligent workers," poor people, especially women, are thought to benefit most from having access to small amounts of capital because it will enable them to become self-sufficient and useful members of society. The poor would benefit from this and rural poverty would decrease as a result. Thus, microfinance programs that focus primarily on supporting small businesses have a clear appeal, especially in an era marked by the strength of neo-liberal ideologies and by the advantages of the market and private enterprises. We must consider this trend in light of the nature of the state, its relationship to "citizens" who are seen as "consumers," the nature of democracy, and the discourse surrounding poverty, citizenship, and development.