In this short blog post, I want to make the case for why a critical study of ‘poverty finance’ is crucial to understanding neoliberalism and its limits, following the publication of my new book A Critical History of Poverty Finance.
The term ‘poverty finance’ is Katherine Rankin’s. She uses it to refer to ‘the business of extending financial services to those traditionally excluded from the mainstream financial system’. For Rankin, the general term ‘poverty finance’ is a means of drawing out the connections between projects in the global north and south—showing how both microcredit and subprime mortgage markets depend on a kind of ‘socio-spatial fix’. That is, Rankin emphasises how poverty finance creates new avenues for the redeployment of over-accumulated capital both by reconfiguring spatial relations (as in David Harvey’s ‘spatial fix’) and by configuring the survival of racialised and gendered marginal populations in ways that are amenable to financial accumulation.
The general rubric of poverty finance—designating activities aimed at extending finance to those ‘outside’ the mainstream financial system—is also a useful way of grouping together a range of activities across time. The history of poverty finance in this sense can be traced back through a cluster of highly failure-prone interventions in colonial contexts dating to the early decades of the twentieth century.
In my book, I trace out some of this history, with an eye on the threads linking colonial interventions, through the era of structural adjustment, the failures of microcredit, and the current vogue for ‘fintech’. Studying poverty finance is especially valuable because it helps us position the neoliberal project and its limits against the backdrop of colonial capitalism.
It’s commonplace for critics of contemporary forms of poverty finance—like the promotion of fintech, financial inclusion, and microcredit—to describe these interventions as ‘neoliberal’. They are right. The push to widen ‘access’ to finance constructs poverty as a problem of lack of finance, to be remedied by laying the groundwork for the incorporation of the poorest into new markets. Poverty finance, in this sense, encapsulates the neoliberal reliance on building new markets or market-like devices as solutions to all manner of social problems.
These stories of ‘inclusion’ can mask a reality of grim exploitation. Microcredit, and increasingly fintech-enabled credit, have been linked to a number of crises of overindebtedness. Maybe the most prominent took place in Andhra Pradesh, India in the late 2000s, culminating in the suicides of dozens of overindebted farmers and a major regulatory overhaul of the country’s microfinance sector. More recently, the scope of digitally-enabled debt in Kenya has prompted even erstwhile cheerleaders at the World Bank’s Consultative Group to Assist the Poor to call for ‘a market slowdown and a greater focus on consumer protection would be prudent’.
Yet, without diminishing the horrific nature of these crises, they are also outliers. When we look at the longer history of poverty finance, we see a tendency for finance capital to pile into a few places (like Andhra Pradesh, or more recently Kenya), while skipping over the vast majority of people and places in the global south. This has taken place in the face of the prompting and prodding of the Bank and national governments seeking to promote wider ‘access’ to finance across the board.
There is a crucial paradox at the core of poverty finance interventions. The reason the poor are seen to need access to finance—namely due to their low and unpredictable incomes—is also a key reason why alleviating poverty by providing financial services to the poorest on a commercial basis has typically proven to be little more than a politically-driven fantasy. It’s risky and not particularly profitable, under most circumstances, to lend money to, insure, or provide other financial services to people with small and irregular incomes. Real accumulation, in short, doesn’t operate in the ways that neoliberals would like.
The history of poverty finance, then, is first and foremost a history of grim failure, even on its own terms. If poverty finance epitomises neoliberal narratives about development, these failures are telling about the limits of neoliberalism itself. We know pretty well at this point that failure, as such, is a core part of the history of neoliberalism, as in, for instance, Jamie Peck’s evocative description of neoliberalism ‘failing and flailing’ forward through a dispersed series of policy experiments. My book chimes with this picture in important ways. But the history of poverty finance is also particularly revealing of just how much the trajectories of neoliberal development practice have been shaped by the messy encounter between the neoliberal project and the deep-rooted histories of uneven development generated by colonial capitalism.
Making markets in a colonial world
Crucially, the failures of neoliberal poverty finance interventions are easier to understand if we place them in their colonial context. This is true in the widely accepted sense that global patterns of poverty and uneven development are colonial in their origins, but also in the maybe less obvious sense in that the organisation of production and accumulation in colonial territories has had enduring effects on the development and specific organisation of postcolonial financial systems. Colonial economic systems varied, but they were broadly designed to transfer profits back to the metropole, and transfer the costs and risks of productive activities onto racialised working classes (broadly understood) in colonised territories.
Colonial banks, in this context, specialised in lucrative, low-risk activities like facilitating funds transfers between colonised and metropolitan territories. They made comparatively few loans in general, almost entirely to colonial governments, large merchant firms, and to expatriate plantations, farms, or mines where these were present. The infrastructures that banks built up to facilitate these activities centered on branch networks overwhelmingly concentrated on a handful of key commercial centres.
Colonial officials in the first half of the twentieth-century were often concerned about the consequences of this system for the inability of the small farmers to access credit. In terms that aren’t alien to present-day debates, they worried that limited access to credit undermined agricultural productivity. They also identified many of the same underlying obstacles as in contemporary analyses of financial inclusion. One survey of Nigerian banking operations published in 1952, for instance, noted that ‘Many Africans wish to operate accounts… on which the average balance is small and the number of transactions high’. Such accounts could only be profitable ‘under (rare) conditions where returns on assets were sufficiently high to outweigh the cost of making many small transactions’. Colonial efforts to promote wider access to finance, which often relied on building parallel state-backed credit systems, generally ended in failure.
Many postcolonial governments ramped up these efforts, often launching state-owned agricultural development banks. In a very important sense, more recent neoliberal forms of poverty finance emerged out of failed efforts at the World Bank and USAID in particular to expand the operations of these institutions by shifting them onto a more commercial footing. State-owned banks were key victims of structural adjustment, and the Bank and others increasingly turned to the promotion of microcredit as a way of working around the limits of commercial financial infrastructures that had often retained their colonial geographies.
In short, poverty finance offers up a vital lens on neoliberalism because it is a site where market fantasies smash up particularly clearly against the realities of uneven development in a (post)colonial world. Present-day experiments with fintech should be positioned in this longer history of unsuccessful efforts to grapple with the limits of colonial financial infrastructures, and more widely with patterns of radically uneven development inherited from colonial capitalism. A Critical History of Poverty Finance makes a contribution towards starting to map this terrain.
The set image is of the United Africa Company (UAC) central offices in Nigeria, a division of Unilever.