Surveys of Theory, Evidence and Policy
Edited by Christopher J. Green, Colin Kirkpatrick and Victor Murinde
Chapter 10: Rural Financial Markets
Political economy analyses of moneylender exploitation were a strong rationale for past state-subsidized credit provision. The objectives of credit projects, especially those in South Asia, have often involved reducing the dependence of borrowers on moneylenders and the power relationships they represent. Rural ﬁnancial markets 327 The approach to building self-sustaining MFIs that charge interest rates to cover costs has challenged this rationale and many credit providers have accepted the view that access rather than price is the critical factor for poor people. Notwithstanding this development, an indicator that is often used to assess impact is moneylender dependence. But such an indicator, if it is to be useful, needs to reﬂect the wider context of the ﬁnancial market and the underlying power relations which money lending represents, as well as the circumstances of poor people’s livelihoods. Questions must be asked about whether the market niche of moneylenders is really being eroded, or simply being converted or channelled into other types of production and exchange relationship. Is it as easy as shifting dependence from the moneylender to the MFI, who act as new patrons? Evidence has been presented from Bangladesh demonstrating that households participating in MFI programmes borrow as much from informal sources (moneylenders) as other households and crossﬁnance their debt repayments to either source (Sinha and Matin, 1998). As was explained above, the idea of building sustainable microﬁnance institutions converged with ﬁnancial repression thinking. The Ohio School had earlier criticized subsidized lending both through the state in the...
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