Inclusión en Educación Primaria de Básica Regular 1 Educación Primaria de Básica Regular

In Peru, the variety of public advertisements provided by MFIs on their products show, that MFIs believe that there is large number of consumers that can potentially be acquired. However, my research on microfinance clients has shown that many (particularly female) Peruvian entrepreneurs have not heard nor taken advantage of microfinance.

In their advertisements, MFIs address clients following two different principles: On an individual level, they promote that work and wealth can be generated through microfinance; on a collective level, they emphasize that microfinance clients contribute through their work to the Peruvian economy (cf. those of CMAC Arequipa and MiBanco). As such, microfinance commercials usually do not focus on interest rates despite being a deciding factor. Rather, they want potential clients to visit their offices in person. Obviously, MFIs follow this strategy because interest rates are individualized and they cannot promote a fixed interest rate to every potential client.

Still, MFIs promote their products in personalized commercials, too. It is interesting how MFIs receive data on potential clients to whom they can offer loans of a certain amount with fixed conditions. This is not the only aspect that questions the belief that microloans are primarily used as a tool to encourage sustainable development. The clients and MFI representatives interviewed stated that, particularly during the holiday season, microfinance promoters contact potential clients and increase their advertisements (cf. M.E., 12.04.2012, Lima and K.R.). MFIs following this marketing strategy primarily motivate clients to consume commodities and to use microloans for consumption, knowing that consumption is often a pressuring factor for “the Poor” who want to participate in community life and prevent social exclusion (cf. Sen 2000, 113).

At Christmas, when everybody feels the need to buy gifts, MFIs see their time to promote their products. Not only profit-oriented banks, such as MiBanco, but also NGOs, like EDAPROSPO, openly support clients who are using their loans not for their business but for personal consumption (cf. M.E., 12.04.2012, Lima and D.V., 10.04.2012, Lima): At MiBanco, it is a common practice for clients to pay off their loans in November and ask for a new loan in December in order to increase the amount credited. EDAPROSPO even knows in advance that they need more funds in December, assuming that their clients will request more parallel loans during this month. Thus, it is not only the “nice picture created” (cf. A.M., 29.03.2012, Arequipa) in MFI commercials that often turns out to be fake, but also implies that the widespread portrayal of microloans, which are primarily and mostly used for development is incomplete. Although poster-commercials emphasize the business relation of microloans, it seems that the

“(Doing) Business With The Poor” – Examination: Evaluation of Microfinance 73 personal advertisement strategies of some MFIs (especially those who send promoters once a month to their clients, offering parallel loans – cf. experience of O.M., J. E.C. and K.R.6_{) even}

increase the risk of over-indebtedness and hence, endanger any development of microfinance clients.

Although one might believe that the use of microloans for consumption was primarily encouraged with the transformation of microfinance into “new wave” microfinance and may not be a general issue in microfinance worldwide, studies in Bangladesh carried out in the 1990s by Aminur Rahman for the Grameen Bank (!) found, that 70 % of microloans were used for non- business related purposes (cf. Bateman 2010, 29). This implies that even in the beginning, microfinance has promoted exclusively income-generating activities. In addition, various studies (of “microfinance insiders”)7 _{focusing on different areas discovered consumption is encouraged}

by microfinance. A study carried out by Rutherford et al. on microfinance in Uganda and Tanzania in 2003, for example, illustrates: “The main reason for borrowing money is to buy food. Thereafter, funerals, school fees, and medical expenses become the most pressing needs” (Rutherford et al., in: Bateman 2010, 30). The evaluation of a microfinance industry that primarily serves as distributer of consumption loans juxtaposes and tremendously damages the picture of microfinance as a tool for poverty alleviation. Thus, as Bateman and Klas conclude, those who actually benefit from microfinance are powerful multinational enterprises that increase the selling of their products (Klass 2011, 56). “It is markets which are being empowered here (…)” (Bateman 2010, 49).

Focusing again on Peru, another risky aspect that is empowered through unregulated competition relates to the general behavior of clients and any financial institution. Clients naturally cooperate with MFIs who offer good conditions and low interest rates. At the same time, MFIs try to reduce their risks in order to offer low interest rates and ask their clients to show proof of certain preconditions. Clients, who know that, due to their documented reputation their loan request will not be approved, contact a different MFI. As my field research has shown, NGOs in general demand less preconditions to be fulfilled than banks and therefore, attract clients who are not accepted at banks. As a consequence of the higher risk potential NGOs have to increase their interest rates but simultaneously, even less “capable” clients will be attracted because of the high amount of interest they would have to pay (cf. Prisma). Consequently, as long as risks are

6 _{K.R. even testified that his analyst only visits him when the MFI is running a campaign (Original: “La analista nos}

visita en situación de Campañas.”).

7 _{John Hatch, the founder of FINCA International and supposedly the “true founder of microfinance“ and}

opponent of Muhammad Yunus even admitted publicly, that estimated 90 % of microfinance is used for consumption purposes rather than for income-generating-activities (Bateman 2010, 30).

“(Doing) Business With The Poor” – Examination: Evaluation of Microfinance 74 transferred into the percentage of interest rates and a minimum of preconditions is not defined, clients as well as MFIs have to face over-indebtedness and bankruptcy. Although Sen perceived markets as legitimate frames of development in the sense of enabling people to undertake mutually advantageous activities (cf. Sen 1999, 142), my findings in Peru prove, that this interpretation on the benefits of unregulated markets endangers development on the long-run. As D.V. explained, MFIs do not primarily operate in rural areas because of the poverty alleviation potential but rather due to the competition MFIs have to deal with when being (exclusively) located in urban areas. Christiane Ströh (2010, 252) also stated in her dissertation on microfinance in Peru, that “(…) nearly all branches of banks and finance companies within the larger cities (are/note D.W.) located in the more developed areas.” The concentration of MFIs in urban areas does not correlate with the poverty distribution in Peru, because the majority (54.2 %) of the people suffering from poverty in Peru live in rural areas (according to the most recent numbers available from 2010, UN Statistics 2012). Thus, those who are supposed to be addressed with microfinance again are not reached. As a contrast the findings by Ströh and the results of my study, Bateman, referring to studies on microfinance in Africa and Asia, found MFIs prefer to operate in agriculture because they know “that repayment could be eventually secured by many factors other than the success of the individual dairy unit” (Bateman 2010, 89), such as land titles.

Nevertheless, in regard to the “aggressive competition” of MFIs discovered in Peru, Bateman also observed this competition to be constantly increasing worldwide, not only due to the increment of players operating in microfinance but also because there is a “growing number (of clients/note D.W.) voluntarily choosing not to take on any new microloan” (Bateman 2010, 52). This competition also weakens the working conditions of MFI employees, who are expected to work more for less salary (cf. Klas 2011, 208). Bateman explains, because of the bad image MFIs increasingly have to suffer from, so-called client “drop outs” occur more frequently, which causes “MFIs everywhere to be increasingly caught up in a desperate struggle to find new clients.” Therfore, MFIs often “hide the true cost of the microloan they wish to sell” and pressure clients to take out parallel loans (Bateman, 2010, 52f.). Again, this practice intensifies the danger of over-indebtedness of clients and MFIs, but critics also stress the likelihood of a “major credit bubble” that might grow in microfinance, too (cf. Bateman 2010, 54 and Klas 2011, 48).

“(Doing) Business With The Poor” – Examination: Evaluation of Microfinance 75