by Mathilde Maîtrot
When she first started borrowing from Microfinance Institutions (MFIs), Naseema — a 40-year-old widow living in a small village in a northern district of Bangladesh — would get regularly upset by her credit officer’s weekly home visits. Credit officers would insult people who could not pay, calling them bad names and shaming them in front of their neighbours when collecting the ever-overdue kisti, the weekly loan repayment. Over time, however, she described becoming accustomed to the confrontational haggling and somehow managed to get by, borrowing from friends, or other MFIs to meet repayments. But, one day when the heavily pregnant credit officer returned to Naseema’s shack at night for a second time, things turned. Pleading with Naseema to find a way to repay, the credit officer confessed that she feared her manager’s reaction if she was to return to her MFI branch empty-handed. Having borrowed from neighbours to repay previous loans and relying on their food donations to meet some of her basic needs, Naseema knew she’d exhausted her options and was incapable of finding the BDT340 needed that evening (approximately £3). The officer broke into tears and asked to spend the night with Naseema. That night the officer’s water broke and neither she nor Naseema had the means to transport her to the nearest hospital.
Since microfinance expanded dramatically across the world in the 1990s and 2000s, much effort has been given to devising sophisticated techniques to assess its precise ‘impact’ and ‘outcomes’ for poor ‘clients’. Stories, such as that of Naseema’s above, can be easily dismissed as ‘non-representative’, with large-scale quantitative analysis — particularly randomised control trials (RCTs) — often seen as the only valid way of generalising about microfinance practices and effects. So what can Naseema’s story teach us? I would argue that it draws attention, not to whether microfinance works, but to how it is practised — a question that is commonly neglected in research on microfinance and wider development and policy interventions.
Based on this, I argue that we need to better examine the frontline organisational pressures on street-level bureaucrats and how these influence the dynamics of development interventions and social policies. As predatory lending, indebtedness, and debates around the rollout of new social policies occupy much attention in the UK, this case offers lessons for the global north as well as for the global south.
The art of tricks and tactics
Policy implementation is often understood simplistically within international development and social policy. Organisations are seen as monolithic and as linearly ‘delivering’ interventions. By failing to acknowledge how features of implementation are discursively shaped and reshaped by power and incentives within organisations, this view serves to depoliticize such bureaucratic processes and their everyday governance. Paying greater attention to the politics of implementation in microfinance, I examined how MFIs’ ‘ruling relations’ govern power relations in diffuse, pervasive and discursive ways, and affect how microfinance is practised.
MFIs in Bangladesh are in many cases huge bureaucratic organisations, with complex structures and incentive systems designed to make them function effectively and serve their double bottom-line: to reduce poverty and be financially sustainable. Decentralization, standardization and low-cost human resource management are seen as efficient devices that secure financial performance and growth. Minimal costs are borne by the headquarters and branches function as financially self-sufficient profit centres assuming their own human resource and administrative costs. Branch managers monitor the financial transactions of loan officers daily. Credit officers are proscribed from returning to the branch without the expected repayment amount and financial sanctions and punitive transfers apply when individual performance is weak. Wider institutional policies regarding staff promotion, recruitment, transfer, branch default, staff misconduct and the remuneration scale are clearly listed to facilitate this.
These rigid bureaucratic structures create strong incentives for credit officers to find creative ways of aligning standardized institutional rules with messier realities. Achieving financial targets in a timely manner depends on credit officers’ capacity to recruit, retain and collect repayment from clients in a timely manner. Much like in other bureaucracies, the street-level bureaucrats of microfinance use their discretionary power to devise tricks and tactics that serve their personal, immediate interests, informally brokering the client-MFI relationship. Although microfinance is promoted as a collateral-free banking model, in practice, to compensate for time-consuming screening procedures, field officers forcefully recruit clients, misinform them, and rely on opportunistic client screening procedures. Clients and credit officers sometimes collude to misreport the intended purpose of the loan on application forms as serving ‘business’ interest when, in fact, the loan is used for consumption or debt repayment. For their ‘good’ clients, credit officers have also been known to advance the kisti as the variability of their earning does not often match the rigidity of the repayment schedule. When repayment becomes difficult for vulnerable and poor clients, credit officers deploy abusive and sometimes violent repayment collection means, seizing some clients’ assets (pots, pans, chickens, plastic chairs, bicycles and roofing materials, for example) to access liquidity when necessary.
Deceptive linearity and practise drift
While microfinance has been lauded globally as an effective tool for poverty alleviation, on the ground, how it is practised appears to contradict the mission and ideals MFIs claim to embody. Rather than see these malpractices as a ‘mission drift’, which reinforces the notion of linearity down into the field, I suggest we should see it as a ‘practise drift’. This ‘practise drift’ is a tacit displacement of the decision-making process about social-financial trade-offs to the individual field-officer level, resulting in the expansion of informal and harmful field-level practises that distort and prevent the intended (positive) effects. Institutional policies that are systematically reinterpreted and adjusted by credit officers can harm both clients and credit officers. In highly decentralized structures these can remain unnoticed, or ignored, by senior managers. Institutions’ financial performance relies on the capacity of street-level bureaucrats and of clients to ‘absorb’ the misalignment between bureaucratic rules and messier realities. This comes at a human cost, both to clients and credit officers, as depicted in Naseema’s story. Indeed, while credit officers are sometimes vilified, clients also often express empathy toward them and justify their actions by pointing to institutional pressures.
There are strong reasons to suggest that this ‘practise drift’ is not specific to the context studied, but is, in fact, a global phenomenon. Worldwide, growing numbers of MFIs are relying on low-cost commercial bureaucratic structures and systems, resulting in practices that are proscribed in most mature financial markets. Indeed, this commercialization has led to crises and ‘scandals’ in Andhra Pradesh, South India, Kenya and Mexico. These contributed to polarizing opinions about microfinance. Focusing on how microfinance is practised is the first step in remedying it. It is only by delving into the incentives and formal and informal dynamics of these interactions that we will arrive at a deeper appreciation of the role microfinance plays, and account for the sometimes violent interplay between people and bureaucracies.
Mathilde Maîtrot is a Lecturer in International Development and Global Social Policy at the University of York and an Honorary Fellow at the Global Development Institute, the University of Manchester. The paper on which this blog post draws is available on the Development and Change website. She tweets @MathildeMaitrot.