By Business and Career Librarian, Steven Assarian
Every so often, I read a book that upends my previous understanding of an idea.
I just read a book like that.
It’s the book We Are Not Able to Live in the Sky: The Seductive Promise of Microfinance by Mara Kardas-Nelson.
It’s a book about micro-finance: extending small loans to the global poor, especially women, in hopes of helping them escape poverty.
In theory, a small investment that harnesses the entrepreneurial power could lift people out of poverty. And it can be replicated anywhere, regardless of cultural context, resources, or history.
But what a lot of advocates of such programs didn’t realize was that, as a solution to poverty, microfinance was a theory. After decades, we have tested that theory.
The results are not as good as we hoped.
In order to understand what went wrong, readers need to understand two threads: the history of microfinance from the governments, NGOs, and banks that popularized it, and the people actually taking out these loans, and what their lives are like. The book gives us both, weaving them in and out of each other throughout the book.
Writing a history of microfinance, by itself, would be hard enough, but Kardas-Nelson brings to life the people of Sierra Leone who are caught in the web of microfinance. She’s clearly an experienced journalist, and brings those skills to bear.
I’ve worked with entrepreneurs for years, and I can recognize the entrepreneurial spirit that I’ve seen from the people of West Michigan. Entrepreneurs want hope, they want financial stability, they want to live their dreams.
In emerging economies, though, we have a much different environment that confronts the entrepreneur.
Here, loans are governed by law crafted over generations. Entrepreneurial support organizations are either free or low-cost.
The microfinance environment of Sierra Leone does not have that kind of environment. Their entrepreneurs not only have to contend with problems of product and the market; they’re trying to work with broken infrastructure, juggle multiple loans, and avoid being sent to prison for debts. Sometimes for as little as $12.
The infrastructure problem is especially stark. Aminata, one of the entrepreneurs the author follows, takes out loans for her yogurt and drinks business. With this loan, she buys a refrigerator, so that she can not only make her products but also keep them cool. That’s exactly the investment you’d expect a budding entrepreneur to make.
The problem is that the electricity in her neighborhood is intermittent. Product spoils. Even when it doesn’t, she can’t peddle the warm yogurt and ginger beer to her customers. She’s in a terrible bind, because the loan is still going to come due whether or not the problems she faces are of her own making. And if she doesn’t pay, it’s jail.
Conversely, the story of the financiers, NGOs, and governments that established and expanded this space is saddening. It’s the story of financialization, of predatory lending, and the redoubling of efforts while losing sight of a goal.
The original goal of modern microfinance was alleviating poverty, itself a reaction to the first phases of international aid the United States conducted after the Second World War. Programs like the Peace Corps and big, top-down infrastructure projects couldn’t create the change they wanted to see because they did not work within local constraints and cultures. Microfinance could.
Further, once you give someone a loan and you pay it back with interest, you can make that loan self-perpetuating. So with a small pot of money, you can keep the whole thing running smoothly for generations to come. It was an attractive solution in an age of tightening aid budgets. We studied recipients, and thought things were working well.
But studies with small cohorts did not capture the whole reality of sustainable businesses, increased assets and income, and heightened stability. If anything, when these longer-term studies were updated, billions of philanthropic dollars had already been poured into microfinance projects around the world.
When nonprofit microfinance began to retreat, banks and other for-profit entities moved into the breach, without even the lip-service that NGOs were taking. The result was absolutely disastrous. The new lenders entering the space have no qualms about charging astronomical amounts for loans. Unlike the original players, new for-profit entities weren’t interested in making borrowers self-sufficient; they were interested in making sure lenders were.
Reading about it, it reminded me a lot of the subprime mortgage crisis, with huge loans being given out without much of an ability to pay, and teaser rates that would eventually fall away. You even see the creation, near the end of the book, of tradable financial assets being created out microloans from emerging economies, and people getting fabulously wealthy off them.
It is so easy, in a financialized world, to forget what actually constitutes an ‘asset class’. In this case, its predatory debts from around the world.
As I read, I wrote pages and pages of notes on all the things that were going on, all the work that the author puts into painting a thorough and accurate picture of what microfinance does and its history. It’s a testament to the authors reporting that she can weave all these different stories together coherently.
Entrepreneurial spirit is a beautiful thing. I’ve seen it myself, thousands of times. People bringing their own dreams to life is, again, beautiful. But entrepreneurs need stable environments and economies in which to thrive.
This book is, in a word, damning. All of us should read it, if only to caution us into thinking that simple, low-investment solutions can solve the big problems of the world.
After all, if the answer was simple, we’d have solved it already.
The refrigerator just needs to work, no matter how high your spirits are.
