The Debt Machine

Today we come to the end of our series on microfinance in Sri Lanka.

In this series, we have seen:

  • How “animators” preach the gospel of microfinance, gathering their flock from the women of the rural villages in order to monetize their social networks,

  • How the microfinance industry has reorganized villages hierarchically, corporatizing the traditional ways of life, and

  • How simple accounting records kept by the women borrowers are aggregated to produce representations of microfinance as the empowering solution to poverty, ignoring the radical individualism that has been imposed on the women, the isolation they feel in working to make loan payments, and the huge profits they generate for the banks.

I now want to offer some evaluative comments on microfinance, first about its effect on local women in Sri Lanka and then about microfinance as an overall program of social and financial governance. This will require today’s post to be longer than usual.

Effects on Women

The Bankable Woman

Microfinance works because it monetizes the relationships of women. Without the commitment of one woman to another, microfinance would fail. The cost of invigilating all the tiny loans would be excessive if the women didn’t monitor each other, and loan defaults would rise if each woman’s friends and relatives weren’t on the hook for her loans. The self-formation of the individual entrepreneur begins not with individual risk-taking, but with an obligation to others.

In certain ways, the microborrowing groups have actually intensified social relationships. As one woman said:

“We used to keep problems to ourselves. We used to tolerate. Instead, we talk about the problems. Yesterday, my neighbour came and talked to me about her husband’s behaviour [alcoholism] which causes her loan-payment problems. But she did not ask me to help. She comes and talks. That’s it. It is a relief for her as well. I do the same with her when I face similar problems.”

Silhouette of a woman standing at the doorway of a microborrowers group meeting

Silhouette of a woman standing at the doorway of a microborrowers group meeting

The interplay between personal relationships and individual financial discipline produces what we have called microaccountability. Microaccountability brings the emotion and affection of interpersonal relationships into the act of providing an account of oneself. Microfinance uses microaccountability to a specific end: the production of the bankable woman, who will serve as a docile consumer of debt.

Perpetual Debt

There is no doubt that microfinance has had some positive effects on the lives of the women in our study. Several told us that they are now able to afford better education for their children. Others have been able to pay for home improvements they could not have previously afforded. However, pointing to these cases as proof that microfinance “works” is like pointing to jackpot winners as proof that casinos work. The overall effects of microfinance don’t seem to be as unequivocally positive as enthusiasts like Muhammad Yunus would like us to believe.

As we have seen, all of these women, even the most successful, are now working in isolation rather than pooling their labour together as they used to. The businesses they have been able to start with microloans do not scale up, because the profits from their initial investment are consumed by interest payments and urgent family expenditures. We know that in some cases husbands have captured and squandered their wives’ loan proceeds, a problem of toxic patriarchy that has plagued microfinance programs in many countries. But even setting aside these cases, microfinance has so far failed to move Sri Lankan women beyond microproprietorship.

It is possible that the rural economy will grow over time, developing the network effects and synergies required for businesses to grow beyond this stage. However, at present there is little indication that this will ever happen, and much more evidence that the women have become enmeshed in a web of debt they cannot escape.

Finances are so tight for these women that they sometimes must use loan proceeds for critical family needs, rather than investing them in more inventory or productive capacity. This leaves them with insufficient business income to make their interest payments. When this happens, they borrow from one microfinance bank to pay another, trapping them in a cycle of debt consumption:

“The loan collector is definitely coming next Wednesday,” said one woman, “and another on Sunday and another on Monday. This is why I said, in a way this is a trap.”

If the bankable woman is the product, and the cost of producing her is that she ends up in perpetual debt, what does this say about microfinance as an overall program?

Microfinance enthusiasts want us to focus on its potential as a tool for economic development and emancipation. These putative benefits have been called into question by other scholars, so let me summarize what they have said:

  • Microcredit does not permit a borrower to invest in sufficient assets to become efficient, leaving their businesses perpetually unable to expand. They will always be small proprietorships at best, and never become small enterprises providing jobs to others.

  • Microfinance does not alleviate poverty, it only redistributes it, leaving some much worse off than before.

  • Microfinance regimes draw resources away from investment in small and medium sized enterprises, fundamentally undermining broader economic development. Commercialized microfinance leads to an oversupply of microcredit, leading to credit market crashes, as has been seen in Peru, Mexico, and elsewhere.

  • Microfinance does not move the very poor into the formal economy, but only into the informal economy where increases in supply do not produce increases in demand. This leaves everyone unable to find customers and struggling to make loan payments.

I have provided reading suggestions below for two authors, Milford Bateman and Alice Amsden, who are particularly worth reading on the failure of the microfinance/microbusiness model to lead to economic development. Let me turn now to the insights we developed in our own study, which have to do with what microfinance teaches us about how society is governed today.

Not all microfinance banks use microborrowing groups to ensure debt collection. Here, a helmeted, leather-clad motorcycle rider comes by a microbusiness to take cash directly from the till.

Not all microfinance banks use microborrowing groups to ensure debt collection. Here, a helmeted, leather-clad motorcycle rider comes by a microbusiness to take cash directly from the till.

Microfinance as Social Governance

Transforming the Individual

Microfinance uses accounting to foster self-examination and self-discipline. The individual savings records maintained by the would-be microborrower become a mirror in which she sees herself. The group’s cashbook puts her individual savings behaviour into the context of the group’s collective behaviour. Until she demonstrates financial discipline that matches group norms, she cannot receive a loan.

At group meetings, savings and credit behaviours are recited publicly, providing a ritualized setting for developing self-understanding that makes microfinance resemble a religious practice. Each woman must reconcile herself with the expectations of her peers, either developing herself into a bankable person or forcing her friends and family to repay her debts. It is the enacting of accounting records in this social setting that proves effective here. The bank risks little when it advances credit, not just because the credit comes from the women’s own savings, but because each woman has already adopted all the necessary habits and  beliefs of a good bank customer before receiving her loan.

Like many religious institutions, the practices of Sri Lankan microfinance are highly gendered. Bank employees tend to be men, while women do the borrowing and repaying. The banks consider most village men to be unsuitable as borrowers, often stereotyping them as drunkards. In part, however, the men are ignored by the microfinance banks because they are already participants in the formal economy. Women are the targets of microfinance because theirs was a hidden form of labour in traditional society. Microfinance has brought this labour to the surface and monetized it, while organizing the women’s social relationships into a system to manage the bank’s financial risk. Together, these tactics enable the banks to earn a profit from people who had never before had any need for banking.

Transforming Relationships

Our research is groundbreaking because it looks at accounting and accountability at the micro level, outside of formal organizational contexts. It looks at the capillary action of accountability, rather than the rhythmic pumping of corporate accounting statements. It shows us how personal relationships are being monetized by 21st century capitalism to produce a society of control that permeates the entire population. We can see this not just in microfinance, but in the “sharing economy” of Uber and AirBnB, and in the systematization of social networks by Facebook and Twitter.

This biopolitical management of populations does not replace the bureaucratic methods of the 20th century. Rather, it supplements them and extends them into the intimate details of daily life, pushing each of us to think entrepreneurially in every aspect of our existence. Each spare room in our homes is a microrental opportunity. Each tweet is a microproduct we design to earn the most likes and retweets.

This level of population management is accomplished by transforming and harnessing traditional social practices. This leaves us with the central paradox of microfinance: that individual economic self-reliance can only be promoted through heavy dependence upon interpersonal relationships.

The Financialization of Poverty

Although microfinance extends the financial markets to the entire world, our research suggests that at the local level, these markets remain perpetually incomplete. With rare exceptions, microborrowers in Sri Lanka are borrowers in perpetuity, because most “enterprises” financed by microcredit have no potential to scale up.  While some microentrepreneurs do better than others, virtually no one graduates from microfinance to commercial credit, with its lower interest rates.

In microenterprises, therefore, production is incidental and relatively unimportant to global capital, except for symbolic and rhetorical purposes. Under microfinance, poor villagers do not sell their labour to capital. Rather, they bear the financial risks of their own labour and perform for free the tasks of raising and managing their own finances. Microfinance thus enables capital to earn a return for a risk it neither bears nor manages.

Just like social impact bonds, microfinance provides rich returns to creditors by turning the poor into individual sources of cash flows. Microfinance does more to financialize poverty than it does to solve it.

A woman wanders past a market stall started with a microfinance loan

A woman wanders past a market stall started with a microfinance loan


Our examination of microfinance in Sri Lanka has shown that the poor are, in the words of Hard & Negri, an “indispensable presence” in the production of wealth. It has shown how microaccountability, the fashioning of everyday social interactions into a web of mutual surveillance and mutual accountability, allows the finance industry to integrate the production of wealth into the production of social life.

Microfinance generates wealth for the banks because, just like social media, it arranges and exploits social relationships in a way that integrates self-creation with consumption. We are talking here about the consumption of debt, not the consumption of goods and services. The alleviation of poverty is an important rhetorical trope for microfinance, but if anyone moves out of poverty, it is as much by chance as by design. Think of it this way: microfinance has no more need to make its borrowers wealthy than Facebook has to make its users wealthy.

Photos © 2012-2013 Wickramasinghe. In previous posts I mistakenly dated the photos as 2007, having misread the timestamp information. I’ve now gone back and corrected these dates.

The photo at the top, behind the article headline, is of candlesticks manufactured by one of the microbusinesses. The woman has no warehouse so the inventory is stored in her home.

Our Article

Alawattage, C., Graham, C., & Wickramasinghe, D. (2018). Microaccountability and biopolitics: Microfinance in a Sri Lankan village. Accounting, Organizations and Society.

For Further Reading

Amsden, A. H. (2010). Say’s Law, Poverty Persistence, and Employment Neglect. Journal of Human Development and Capabilities, 11(1), 57-66. doi:10.1080/19452820903481434

Bateman, M., & Chang, H.-J. (2012). Microfinance and the Illusion of Development: From Hubris to Nemesis in Thirty Years. World Economic Review, 1, 13-36.

Hardt, M., & Negri, A. (2000). Empire. Cambridge, Mass.: Harvard University Press.

Yunus, M., & Jolis, A. (2001). Banker to the poor: the autobiography of Muhammad Yunus, founder of Grameen Bank. Oxford: Oxford University Press.