By John Gershman and Jonathan Morduch, published by the Financial Access Initiative of New York University, April 2011, 9 pages, available at: http://www.microfinancegateway.org/gm/document-1.9.56804/Credit%20is%20not%20a%20right.pdf
This paper examines the argument that credit should be considered a human right and whether a rights-based approach to microcredit promotes the industry’s universal goal of poverty reduction worldwide.
The authors discuss various ways to define a right to credit. Such a right could be understood, for instance, in terms of universal access, similar to how some societies view education or health. Another component of our understanding of credit as a right is associated with fair treatment or quality of service. As a number of these issues lead to an ongoing philosophical and political debate, the paper settles on recounting the possibilities to demonstrate its complexity rather than adopting one specific definition for its analysis.
The first section of the paper interprets the proposal by Nobel laureate Professor Muhammad Yunus that credit should be elevated to a human right as part of a broader “rights revolution” to raise a sense of urgency regarding its implementation in development policy. The authors argue that this approach debases human rights language by diluting the moral or political legitimacy of rights in general. If everything viewed as moral becomes a right, then rights lose some of their exceptional quality. Another concern stems from a cost-benefit analysis perspective. If credit is established as a human right, then arguments in terms of efficiency or effectiveness may be overruled due to credit’s status as a right.
The second section of the paper reviews empirical data to assess whether the success of access to credit warrants Professor Yunus’ call to establish credit as a right. The evidence indicates that, while access to credit helps some recipients some of the time, it does not guarantee success all of time. And in some cases, it results in damage. With such heterogeneous results, the authors conclude that the campaign for universal access to credit loses some of its urgency.
The third section attempts to identify who would be obligated to enforce credit as a right. The authors argue that, though government is perhaps the most logical candidate for this responsibility, this is at odds with the history of microcredit. In most countries, private microcredit providers have filled a gap left by traditional banks and the state, so to entrust the government to guarantee universal access to credit appears problematic. One alternative is for non-state actors to bear this burden, but accountability is difficult to achieve without nationwide enforcement mechanisms. While the authors concede that a non-state system of obligations with no duty bearer is possible, the potential of such a system may be limited.
The authors conclude with an alternative interpretation of a right to credit as the elimination of discrimination. Instead of direct provision of credit, efforts should focus on changing cultural norms or removing legal barriers to its access. Examples of structures that should be changed include rules prohibiting women from owning property or requiring women to obtain their husbands’ consent to borrow. Ensuring that all people have access to identification documents or allowing the use of alternative documents to obtain a loan is another area that warrants attention. The authors argue that, compared to an explicit right to credit, this alternative approach fits into existing rights against discrimination and offers a more practical path to the broader goal of global poverty reduction.
By Brendan Millan, Research Associate
About Financial Access Initiative: The Financial Access Initiative (FAI) is a consortium of development economists at three universities in the US, New York University (NYU), Yale University and Harvard University, who research the expansion of access to financial services for low-income individuals. The initiative, which was launched with a USD 5 million grant from the Bill & Melinda Gates Foundation in late 2006, is housed at the Wagner Graduate School of Public Service at NYU. The Initiative is led by Managing Director Jonathan Morduch of NYU, Director Dean Karlan ofYaleUniversityand Director Sendhil Mullainathan of HarvardUniversity.
About Professor Muhammad Yunus: Professor Muhammad Yunus is a Bangladeshi banker, economist and Nobel Peace Prize recipient. As a professor of economics, he built on the concepts of microcredit and microfinance. Professor Yunus is also the founder of Grameen Bank, a Bangladeshi microfinance institution. In 2006, Professor Yunus and the bank were jointly awarded the Nobel Peace Prize. Professor Yunus himself has also received several other national and international honors.
Sources and Resources:
MicroCapital.org Article, August 20, 2011, “MICROFINANCE PAPER WRAP-UP: Selective Knowledge: Reporting Biases in Microfinance Data, by Jonathan Bauchet and Jonathan Morduch, Published by Financial Access Initiative (FAI) at New York University’s Robert F Wagner Graduate School of Public Service and Hunter College”, https://www.microcapital.org/microfinance-paper-wrap-up-selective-knowledge-reporting-biases-in-microfinance-data-by-jonathan-bauchet-and-jonathan-morduch-published-by-financial-access-initiative-fai-at-new-york-university/
MicroCapital.org Article, June 7, 2011, “MICROFINANCE PAPER WRAP-UP: Microfinance and Social Investment; By Jonathan Conning and Jonathan Morduch; Published by The Financial Access Initiative (FAI) at New York University’s Robert F Wagner Graduate School of Public Service and Hunter College”,https://www.microcapital.org/microfinance-paper-wrap-up-microfinance-and-social-investment-by-jonathan-conning-and-jonathan-morduch-published-by-the-financial-access-initiative-fai-at-new-york-university%E2%80%99s-robert-f-w/
MicroCapital.org Article, August 6, 2010, “MICROFINANCE PAPER WRAP-UP: Microfinance Programs and Better Health: Prospects for Sub-Saharan Africa; by Paul M. Pronyk, James R. Hargreaves and Jonathan Morduch; Published by The Journal of the American Medical Association (JAMA)”,https://www.microcapital.org/microfinance-paper-wrap-up-microfinance-programs-and-better-health-prospects-for-sub-saharan-africa-by-paul-m-pronyk-james-r-hargreaves-and-jonathan-morduch-published-by-the-journal-of-the-amer/
MicroCapital Universe: Financial Access Initiative, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Financial+Access+Initiative+%28FAI%29
MicroCapital Universe: Muhammad Yunus, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Muhammad+Yunus
MicroCapital Universe: Grameen Bank, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Grameen+Bank#
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