How Much Voice for Borrowers? Selective Visibilities and Partially Blocked Recursivities in the Transnational Microfinance Sector

The concept of recursivity has gained much traction in transnational governance research over recent years, in particular in the context of evolving debates about experimentalist governance and responsive governance (Halliday/Carruthers 2007; Sabel/Zeitlin 2010). Recursivity emphasizes the cyclical nature of rule-setting, i.e. reciprocal links between the making of rules and their implementation when feedback in various forms triggers the revision of rules (Botzem/Dobusch 2012). In the modern microfinance sector – increasingly a transnational business sector connecting poor and low-income clients in the Global South with mainstream global capital markets – the potential for conflicts between debtors and creditors over the meaning and modalities of credit (credit is the sector’s main activity) is evident, yet remains largely neglected by the sector’s governance structure. While opportunities for participation and feedback from local actors vary according to scheme, where these exist they are largely confined to the details of implementation at the local level.

As a transnational governance field, microfinance offers an interesting case study for recursivity, with its variously opened and blocked channels and the selective visibilities which result. Given that the global rules and frameworks so far have largely functioned to facilitate market-building through global standardisation and harmonisation of business practices, rather than emphasising organisational diversity, let alone active participation of clients in the sector’s governance, the recent emergence and proliferation of initiatives formulating principles and practices for client protection and responsible microfinance may be evaluated as one reaction to – or break with – this pattern. These initiatives serve to make clients’ vulnerabilities more visible in aggregate, but their implementation still often appears top-down and focused on an adaptation of the “normal” science of finance, whereby better client protection is sought (to a large part) by supplying investors with better information about the ethics of certain microfinance investment opportunities. At the borrower end, the effect appears to be mostly a strengthening of the mechanisms of “exit” rather than of “voice”, for instance by better clarifying the terms of credit rather than making them negotiable.

This paper therefore analyses microfinance as characterised by intense and highly visible information flows (particularly financial flows) yet partially blocked recursivity, as few institutionalized access points exist through which far-reaching and fundamental criticisms or suggestions could be made visible or voiced within the system, particularly by the clients. This may help explain why local responses have largely followed an erratic “outburst” pattern that occasionally feeds back on microfinance’s globalized governance institutions in the form of crises; a minimal, unsteady, and for the sector very problematic form of recursivity. Studying recent initiatives for client protection and responsible microfinance, and systematically evaluating the specific flows and blockages of feedback therefore – theoretically – will help clarify exit and voice in relation to recursivity and – practically – address the question to what extent these initiatives may be changing the situation of partially blocked recursivity.