Microfinance and Strong Ties in Lebanon

Abstract

At the heart of today’s global financial system is the central belief that the world will be a fairer place if we were given the full freedom to pursue our economic self-interest in a global marketplace. The microfinance movement has recently joined the fleet of international institutions promoting this belief, promising to extend this freedom to unbankable poor and rural populations in low-income countries through income- generating microcredit, which is believed to set individuals to capital accumulation strategies and liberate them from the shackles of poverty. This thesis is a story of how microfinance institutions (MFIs), NGOs, private banks, and the central bank collaborate to create this imagined world in Lebanon, and the obstacles confronting this project vis- à-vis social credit and other forms of informal surplus exchanges and transfers – derived from redistributive norms within networks of strong ties and trust-based communities prevalent in Arab and other low-income countries. Previous research showed that MFIs struggled to expand the microcredit market in Egypt due to competition with these forms of informal surplus-sharing activities. Influential economists, developmental anthropologists and microfinance promoters argued that the financial pressures and obligations generated by redistributive norms were a burden on individuals, and posed a constraint to individual capital accumulation because they depleted individuals’ surplus. This competition threatened not only the liberal utopia of a “fairer” developing world, but also the microcredit market itself. These threats were countered by disciplinary and surveillance mechanisms (e.g., group loans) to accumulate social and financial information on participants and gradually make more attractive and low-risk loans to individual, ultimately removing them from their informal credit and exchange circles and gradually weakening networks of strong ties.

This thesis confirms these findings in several ways. But what it brings to the table is the ways in which the class structure in Lebanon (the major position occupied by bankers, and to a lesser extent, NGOs and civil society elites) made poor and rural populations more visible and subject to MFIs’ debt manipulation and disciplinary mechanisms, giving the latter more weapons to fight informal surplus-sharing activities and to create demand for microcredit. The influence of these classes since the 1950s translated into a relatively higher financial inclusion rate compared to the region, and a deeper penetration of urban and rural communities by regular banks, international agencies, and NGOs, in turn generating a large repository of information which MFIs exploited in their attack on redistributive norms. This structure, produced a steeper asymmetry of information and power in favour of MFIs, and more broadly the creditor class, allowing Lebanese MFIs to make individual loans without depending solely on the high-cost strategy of group-to-individual loan graduation, and to recycle bankable borrowers and employees by offering them microcredit as they reached their credit limits in regular banks – a phenomenon I labelled as financial re-inclusion. This thesis also provides evidence that what borrowers experienced as a burden to their individual freedom was more likely their inability to support their family and friends rather the pressure of redistributive norms. This thesis is an attempt to re-problematize MFIs, and more broadly the attack on trust-based communities, as a political project enhancing political control and state despotism, and enforcing class structure, rather than an innocuous developmental “breakthrough”. The attack on redistributive norms via MFIs gradually generated sustainable mechanisms of informal surplus depletion, which created indirect means for preventing redistribution – eliminating informal social insurance against starvation, increasing social isolation and dependence on credit and labour, and forcing individuals to internalize self-interest as an imperative morality. The attack also made poor and rural populations more visible and vulnerable to state surveillance and oppression. Therefore, progressive political projects cannot ignore the role of MFIs, and more broadly financial institutions, in weakening the social solidarity of poor and vulnerable communities and in exposing them to market manipulation and institutional control.