Indebted Services: Microfinance, Social Businesses and the Circulation of Capital

Over the past two decades, governments and development policymakers have promoted microfinance as a way to bring the financially excluded into the formal financial fold. In India, the commercial or for-profit microfinance sector, offering small loans most often to poor women, has grown rapidly under the auspices of successive governments’ financial inclusion policies. Proponents of microfinance argue that access to credit will enable borrowers to start or sustain small businesses (i.e., for productive purposes), bring in additional income, and reduce poverty while empowering women. Based on ethnographic fieldwork conducted in the city of Kolkata, however, I have found that the loans are more often used for consumption rather than production, predominantly to pay for increasingly expensive and privatized systems of education and healthcare.

The discovery of bottom of the pyramid markets has led to a proliferation of “social businesses” providing services to the poor, from housing, health, to education. The expansion of services at the bottom of the pyramid is intended to “do well by doing good;” that is, to be providing needed services to the poor while making a profit. In the absence or inadequate provision of public services, the urban poor in India turn to private sectors, including to social businesses. Families increasingly fund these services through debt, including through microfinance. This paper examines how credit is funding the expansion of social businesses at the bottom of the pyramid, and how it sustains rather than mitigates inequality by entrenching the poor in cycles of debt.