Download final tesis!

1
LIST OF ACRONYMS
CGAP
FOSIS
MFIs
Consultative Group to Assist the Poor
Solidarity and Social Investment Fund (Chile)
Microfinance Institutions
OECD Organization for Economic Co-operation and Development
ROSCA Rotating Savings and Credit Association
USD
United States Dollar
2
“The man who moves a
mountain begins by carrying
away small stones.”
- Confucius, The Analects
1. INTRODUCTION
1.1
GENERAL INTRODUCTION
In one of the vulnerable poblaciones1 of Santiago De Chile, Yenny, a 40-year-old head of
household, was working as domestic servant. During her free time, apart from spending time with her
three children, she used to dedicate herself to her dream: handicrafts. She made looms, tapestries,
dream-catchers and pictures with recycled materials that she found on the ground or that people gave
her. At the beginning it was just a hobby, but then she decided to transform this passion into her work.
She received $100,000 CLP2 from a microfinance institution and bought some materials. It was the first
time she could spend money for her hobby and receive trust from somebody she did not even know.
She kept on working as a domestic servant but she dreams to live off her art. She now thinks to be on
her way of getting what she wants.
In Chile, the crisis in the 1980s created high levels of unemployment and, consequently,
economic and social exclusion. To face this situation, people decided to set up new economic initiatives
in order to find a source of household income. Although risky, small economic units were set up by
vulnerable people, with a necessity of small loans not worthwhile for the traditional bank (Martinez et
al. 2011: 143-144). In these years, various microcredit institutions such as NGOs, banks, cooperatives
and foundations, emerged in order to support microenterprises. The difference between them is
constituted by the target demand, ways of function, aims and impacts. Nowadays, in Chile there are
more than 1,700,000 entrepreneurs – formal and informal- and 75% of them still do not have access to
adequate financial services (Martinez et al. 2011: 193-194). Moreover, almost 3 million out of 17
people live below the poverty line: among them, some survive thanks to public subsidies, others
manage economic activities and are excluded from the traditional banking systems (Ibid.).
The microcredit experience in Chile took inspiration from the microcredit promoter and winner
of the Nobel Peace Prize Muhammad Yunus who opened a financial institution, the Grameen Bank, in
1 Village
2 They correspond to 180 USD
3
order to deliver microloans to poor and “unbanked” people. Starting in the 1970s, microcredit rapidly
became the bottom-up approach for “economic development and purposive social change as evidenced
by its continuing growth terms of volume, geographical coverage, and influence over social, economic
and political processes” (Fernando 2005: 3).
The purpose of microcredit is to reach the bottom of the pyramid, the so-called fourth wagon.
Luis Razeto, an Ital-Chilean socio-economist, compares the world economy to a train where the first
class is occupied by developed economies, big corporations and affluent people; in the second wagon
there are developing countries, medium enterprises, professionals and executives; in the third, there are
workers and countries that run the risk to be kicked out of the train; finally, outside this train, there are
all the people that are marginalized and excluded by the system (Razeto 2006). Outside the train there
are some poor people that survive thanks to public subsidies, while others are creative and talented
individuals who need help and support. These people which struggle to get in the train compose the
fourth wagon.
During my fieldwork in Chile, I had the opportunity to have direct experiences, then deepened
my knowledge and understanding through books and articles. Thanks to my job, I had the possibility to
interview clients of microfinance institutions and people that work in the microcredit field such as
directors and managers of institutions. Hence, it was possible to enrich my panorama of knowledge
about the microfinance world in Chile. From one side, the clients, who have been participating to a
microcredit program for more than one year, were witnesses to the impact of microcredit on their lives.
On the other hand, people who work for microcredit institution shared their remarkable knowledge
about their professional experience. The latter are all part of the Network of Microfinance Institutions3
that groups all the microfinance institutions whose aim is to eradicate poverty and generate social
development. The results obtained through my field work experience, the interviews and the study of
theories are condensed in this work of analysis about issues related to the economic and social impact
of microcredit on beneficiaries' lives.
3
The original name is “Red Para el Desarrollo de las Microfinanzas en Chile”.
4
1.2
PROBLEM FORMULATION
In the last decades, the level of poverty and inequality decreased slightly, however Chile still
suffers from disparities between rich and poor people (OECD). As a development tool and bottom-up
approach, the purpose of microcredit is to alleviate poverty and improve living conditions.
The aim of this social research is to investigate:
how microcredit economically and socially impacts poor people's living conditions in terms of income,
family well-being, empowerment and social network.
The research questions that help to answer the main question are:

Considering the distinction between different types of microcredit institutions, how does
microcredit impact poor people's living conditions in terms of income, family well-being,
empowerment and social networks?

How does the neoliberal and solidarity economy approaches explain these impacts on poor
people's lives?

Considering the Solidarity Economy approach, how can microcredit improve the impacts on
poor people's living conditions?
1.3
CLARIFICATION OF TERMS
In this section, some definitions of terms used in this paper will be provided in accordance with
the Chilean context:

Microcredit: “programs [which] extend small loans to very poor people for self-employment
projects that generate income, allowing them to care for themselves and their families”
(Grameen Bank website).

Microfinance: I refer to financial services offered to low-income clients by institutions (Niccoli
& Presbiterio 2010: 25). In this paper, there is a distinction between microfinance institutions
with a minimalist approach and an integrated approach. The first ones, which consist basically
in banks and cooperatives, offer individual credit to clients that have businesses already
consolidated. The amount of their loans exceed one million CLP 4.Apart from credit, they
4
One million Chilean Pesos is approximately 1,774 dollars (USD).
5
deliver also other financial services such as credit cards for consumer credit, bank accounts,
savings account and so on. Microfinance institutions with an integrated approach offer credit to
group of vulnerable people that not necessarily have already a business. These institutions,
mainly NGOs and foundations, offer credit and social intermediation services such as business
training. The amount of the loans is lower than one million CLP. These groups consist in 10-20
low-income individuals responsible for each other credits ( Ledgerwood 1998: 65-66).

Microentrepreneurs: Individuals who have self-employment projects, sell less than
57,743,8565 Chilean Pesos and are close to or below the poverty line (Mendoza 2012: 3).

Empowerment: “it refers to the expansion in people’s ability to make strategic life choices in a
context where this ability was previously denied to them” (Kabeer 2001: 19). In this project, it
is used in terms of self-esteem, autonomy in making decisions, vision of the future,
participation and leadership.

Social capital: social relations of individuals considered as a set of resources which they can
utilize, together with other resources, in order to better pursue their aims (Pizzorno 1999: 374).

Well-being: “a state of health, happiness, comfort, and prosperity” (WordReference). In this
social research, because of the vagueness of the concept, it will be used in terms of
consumption, health, education and savings.
5
102,491 USD
6
2. METHODOLOGY
This section provides the methodological considerations that characterize this paper. This
includes “theories of how, and how far, a research design enables researchers to draw sound inferences
to conclusions that offer answers to the research questions and to determine how far hypotheses are
supported or undermined” (Perri & Bellamy 2012: 305). In other words, methodology is basically how
to acquire knowledge; hence, in this section, after a brief section about the structure of the paper, I will
examine in depth the research strategy, research design and the limitations of this research.
2.1.FIELDWORK EXPERIENCE
Firstly, I will shed some light and importance on my experience in Chile. This research project
is based on my internship and, consequently, job that I developed in Santiago De Chile. For nine
months I worked in the field monitoring lending groups in the vulnerable areas of Santiago. My
participant observation during my work-hours represents an important hallmark since visiting and
talking with people incited me to develop curiosity about the popular economy and to write this social
research. Indeed, during the job, the possibility to realize social and economic evaluation of clients has
led to my involvement in people's business and develop an interest about other aspects of credit,
including the social sphere. Moreover, the opportunity to participate in formal meetings with experts in
microfinance institutions raised my interest about topics such as the problem of sustainability of
microfinance institutions (MFI) and the importance of government recognition of MFIs.
2.2.
RESEARCH STRATEGY
Research strategy, as Bryman (2012: 35) defines, is “a general orientation to the conduct of
social research”. According to Bryman, the characteristic distinction between qualitative and
quantitative research leads to distinguish “differences in terms of the role of theory, epistemological
issues, and ontological concerns” (Ibid.: 37).
2.2.1.
QUALITATIVE AND QUANTITATIVE APPROACH
The qualitative approach consists mainly in “descriptions, accounts, opinions, feelings” and “is
common whenever people are the focus of the study, particularly small groups or individuals, but can
also concentrate on more general beliefs or customs” (Walliman 2006: 129). The research methods
associated with qualitative research that I employed are (Bryman 2012: 383):
7

ethnography and participant observation: for nine months I had been immersed into the social
setting of
vulnerable poblaciones of Santiago “in order to observe, question, listen and
experience the situation in order to gain an understanding of processes and meanings”(Ibid.);

qualitative interviewing and focus group were conducted in order to gain information about the
microfinance world and its impacts on their clients' living conditions.

Analysis of text and documents, e.g. formal studies on the same case, news and articles, books.
On the other hand, quantitative data are also employed to conduct this social research. This includes,
for example, economic growth, trends and indicators of concepts such as poverty and inequality as they
“tap concepts that are less directly quantifiable” (Ibid.: 164). Moreover, measures such as personal
income, investment in goods and equipment are employed as economic indicators of people's
businesses and personal well-being. Nevertheless, all these numbers and figures do not express
qualitative information about a phenomenon, hence it is the social researcher's duty to “make them
speak” (Kura & Sulaiman 2012: 12).
Therefore, in this paper, a combined method of quantitative and qualitative research– the socalled 'mixed methods research' – is used in order to be “mutually illuminating” (Bryman 2008: 628).
In fact, many impact studies on microfinance collect quantitative indicators e.g. coverage and
repayment rates, which do not express fully the qualitative improvement of human lives but aggregate
data that have to be taken into consideration. Obviously they are not separate, they work jointly to
“provide a better understanding of a phenomenon” (Ibid.: 649). Indeed, qualitative and quantitative
approaches in social science can be combined in order to understand and to analyze complex subjects
such as poverty (Kura & Sulaiman 2012: 13). “The major issue in combining is to note that the
quantitative approach is about breadth while the qualitative approach is about depth”. (Ibid.: 15). In my
case study, the interviewees combined quantitative data to express the income of their business and
qualitative data which to express clients' assessment of improvement. This social research is therefore
more heavily based on qualitative data, that is people's assessments, perceptions and feelings.
2.2.2.
EPISTEMOLOGY AND ONTOLOGY
“Every research tool or procedure is inextricably embedded in commitments to particular
versions of the world and to knowing the world” so the inclination to qualitative or quantitative
methods should bring about certain epistemological and ontological considerations (Hughes 1990: 10).
With regards to epistemology, or “what is (or should be) regarded as acceptable knowledge”, an
8
interpretative approach rather a positivist one should succeed the inclination for qualitative methods
(Bryman 2012: 31). In the same way, qualitative research should be related with a constructive
ontology, that is “the belief that social phenomena are in constant state of change because they are
totally reliant on social interactions as they take place” (Walliman 2006: 15). In regards to positivism,
Hughes (1990: 149) asserts, that it is essentially based on observation and taking knowledge of an
objective reality that is independent of the social researcher but, on the other hand, “the social world, its
topic of inquiry(...) is constructed through meanings and the practices predicated on them” (Hughes
1990: 149). Therefore, in this research, the point of departure is how people view their social situation
and how they assess their living standards. In other words, it is based on my interpretation of other
people's interpretations. Moreover, the social researcher is not a “passive reporter” but an “active agent
in the construction of accounts of the world through the ideas and themes incorporated in forms of
knowledge” (Ibid.). Indeed, the researcher brings his/her own unique interpretations of the world
because she/he is “inextricably bound into the human situation which she/he is studying and it is
necessary to remain open to the attitudes and values of the participants (Walliman 2006: 15-20). In this
way, the main preoccupation of the social researcher is trying to see the social world with the eyes of
people being studied in order to see the “social reality as a constantly shifting product of perception”
(Bryman 2012: 399-400; Walliman 2006: 37). This research is focused on the understanding of human
action, how people perceive their social status and its improvements: the perception of how microcredit
impacts on their lives is interpreted by them and, at a later stage, interpreted by the social researcher.
Categories such as poverty, living standards, family well-being can be treated as social constructions,
as the result of interactions between people in constant state of change varying “by both time and
place” (Bryman 2012: 34). Nevertheless, people are constrained in an organization characterized by
rules and regulations, cultures and subcultures, “that acts and inhibits its members” (Ibid.: 32).
In conclusion, positivism has limitations that an interpretativist methodology could fill and vice
versa: “the nature of social research is just as complex as conducting research in the real world. You
may discover general tendencies, but they are precisely that – tendencies” (Bryman 2012: 36; Kura &
Sulsaiman 2012: 5).
2.2.3.
DEDUCTIVE – INDUCTIVE
Regarding the process of research, two approaches can be employed: deductive and inductive.
According to Bryman's (2012: 70) categorizations, an deductive approach reflects a rationalist
9
approach, while the inductive is related to the empiricist approach. On the one side, inductive research
implies the observation of reality and the development of “a statement from a position in which we
have no real idea of what might turn out to be plausible, relevant or helpful about the subject of
interest” (Perri & Bellamy 2012: 76). On the other side, a deductive way of reasoning consists of a
general statement and a series of logical steps in order to verify the theory (Ibid.). In this paper,
deductive and inductive ways of reasoning are both employed in order to answer the problem
formulation. Indeed, the scientific method
combines inductive and deductive reasoning, resulting in the to-and-from process of developing
hypothesis (testable theories) inductively from observations, charting their implications by
deduction, and testing them to refine or reject them in the light of the results (Walliman 2006: 18).
Within the inductive and deductive approaches, general and particular, the hypothesis and theories
are in a continuous dialogue. In fact, it is difficult and impractical to say which way of reasoning is
predominant in this specific case.
In regards to this particular project on microcredit, the observation of reality, general
assumptions and critical views on microcredit stimulated the hypothesis. Perri and Bellamy (2012:
76) highlight that “a precise statement of what we expect to find in our observation, given what we
think we know, or suspect we know, in advance of doing our research”. The general statement in
this research was followed by stages of testing theories through empirical materials and back to
theories in a back and forth process.
In conclusion, the categorization of quantitative and qualitative research, to which
correspond deductive and inductive way of reasoning, positivist and interpretative epistemology,
objective and constructed ontology, is a polarization. In fact “quantitative methods have been used
in some qualitative research, and analyses of quantitative and qualitative studies can be carried out
using the opposite approaches” (Walliman 2006: 37).
2.3.RESEARCH DESIGN
The “research design” is “the specification of the way in which data will be created, collected,
constructed, analyzed and interpreted to enable the researcher to draw warranted (…) inferences” (Perri
& Bellamy 2012: 308). In this paper the research design employed is the case study, which consists of
the analysis of the “complexity” and “particular nature” of the case used to answer the problem
formulation (Bryman 2012: 66). As case studies are associated with a “location” and call for an
10
“intensive examination of the setting”, this social research is based on field work that lasted for several
months in the población of Santiago de Chile (Ibid.: 67). The main critiques to the case study as an
empirical inquiry are related to the lack of rigor of the research process and the lack of generalizations
from single cases (Yin 2009: 14-15). According to Yin (2009: 16-20), case studies can offer an
explanation to experiments, answer “how” and “why” and can be used to “enlighten those situations in
which the intervention being evaluated has no clear, single set of outcomes”.
In this research, the unit of analysis consists of Chilean micro-entrepreneurs and clients of a
microfinance institution, while the case study is used to investigate the impact of microcredit on their
lives considering personal income, family well-being, empowerment and social capital. As Walliman
(2006: 46) states, the quality of the investigation of some cases rather than the possibility of making
generalizations is the underlying theme of the paper. The case study investigated consists of samples of
various small groups and single individuals which, according to some characteristics, can be placed in a
“spectrum” in order to compare the different impacts of microcredit on their lives. Regarding the
sample, the executives interviewed are representative of the main microfinance institutions and leading
figures of the Red para el Desarrollo de la Microfinanza en Chile6 which groups all the microfinance
institutions. Regarding the evaluation of the impact, the population of clients is distributed throughout
Chile, i.e. from Arica to Punta Arenas but the sample selected is from different communes of Santiago.
In 2013, 255 thousand of people became clients of a microfinance institution; as a matter of fact the
sample comprehends 15 cases selected randomly of several microfinance institutions. The selection of
the sample is accidental, i.e. “using what is immediately available (…), there are no ways of checking
to see if this kind of sample is in any way representative of others of its kind, so the results of the study
can be applied only to that sample” (Ibid.: 79). Indeed, the institutions gave me the contact of clients
that were requesting a loan during the period between April and May 2014. Then I selected two cases
of group lending,7 clients of two different institutions, Fondo Esperanza and Banigualdad, and five of
individual lending, clients of FINAM and BancoEstado. The aim is to evaluate different impacts of
microcredit on people and to compare them according to the type of microfinance institution. The
population of the clients is quite different in terms of place of origin, income per capita, level of
6
7
Chilean Microfinance Development Network
The Spanish translation is “Banco Comunal” defined as a methodology with groups of minimum 10 people which
gather at least once a month. The definition is quite blurred and nowadays there are various examples that can be
defined Banco Comunal (Hatch
11
poverty defined by FPS8, so the sample is not really representative but, in any case, it illustrates and
deepen economic and social impacts.
The table 1 summarizes all people who work in microfinance institutions that I interviewed for this
social research.
Table 1: Interviewed people who work in microfinance institutions
Institution
Interviewee
Position
BancoEstado
Victor Vera
Advisor to General Management
Banigualdad
Felipe Vergara
Commercial Manager
Finam
Isabel Infante
Director
Fondo Esperanza
Juan Cristobal Romero
General Manager
Trabajo Para Un Hermano
Mauricio Rojas
Director
In table 2 the clients interviewed are here listed together with the institution where of they are
borrowers and method of interview. In Annex I, there is more detailed information about the clients
such as their age, education and so on.
8
FPS or Ficha Proteccion Social is an instrument which uses a score in order to identify people that are at the risk of get
poor or that are already poor, so they can accede to social assistance from the Government (Gobierno de Chile website).
12
Table 2: Interviewed clients of MFIs
Client
Institution
Method of interview
Susana
FINAM
Personal communication
Paula
FINAM
Personal communication
Marcela
Banigualdad
Focus group
Gloria
Banigualdad
Focus group
Makarena
Banigualdad
Focus group
Susana Tuninetti
Banigualdad
Focus group
Luisa
Banigualdad
Focus group
Maria Eugenia
Banco Estado
Telephone interviewing
Lidia
Banco Estado
Telephone interviewing
Rosa
Fondo Esperanza
Focus group
Elizabeth
Fondo Esperanza
Focus group
Hugo
Fondo Esperanza
Focus group
Rosa Zapata
Fondo Esperanza
Focus group
Veronica
Fondo Esperanza
Focus group
2.3.1.
METHODS OF DATA COLLECTION
In order to shed light on the process beneath the social research, primary and secondary data are
examined in this section. Primary data are the results of participation in informal gathering and formal
meetings, and of interrogations of institutions executives and their clients. Primary data are defined as
“the nearest one can get to the truth”, where the phenomenon is experienced directly by the social
researcher. On the contrary, they can be also time-consuming and elusive because their interpretation
can be influenced by the social researcher's values and beliefs (Walliman 2006: 50). The collection of
primary data consisted of face-to-face interviews in the executives' offices and in clients' houses and
environment, and by telephone when clients were too busy. Face-to-face interviews are constituted of
individual interviews and two focus groups: while the first are more concentrated on a own person's
way of understanding the social world, the latter consist of discussions about a particular topic, i.e. the
impacts of microcredit on their lives (Ibid.: 98). The phone interviews were recorded through notetaking while all the others were audio-recorded and later transcribed. The interviews are characterized
13
by a flexible format to allow the social researcher “to 'ramble' in order to get insight into the attitudes of
the interviewee” (Walliman 2006: 92). The interviews conducted were semi-structured in the two
samples. Indeed, with regards to interviews to clients it was important that people could speak about
co-related topics in order to not feel bounded or to increase my knowledge about it. In regards to
microfinance institutions, the interviews consisted in quite free discussions about topics that I was
interested for the social research. Additionally, participant observation, where “the researcher engages
fully in the life and activities of the observed, who are aware of his/her observing role”, is a method of
collective qualitative data and it was experienced during the work period (Ibid.: 96). Indeed, I
conducted my interviews to clients when I was still working and I took advantage of some gatherings
or assessments in the field. From one side, they still considered me as a worker, from the other side
they demonstrated a lot of interest about the interview.
In regards to the methodology of measuring the impact, I used the so-called before-after based
essentially on qualitative data assessed through the interviews before the delivery and after one year
from that. The interviews followed a scheme utilized by the FINRURAL9 about the income and family
well-being. In relation to empowerment and social capital, I utilized a survey employed by the
microfinance institutions when they evaluate new clients, hence it was possible to compare it with the
previous assessments that the organization gave me.
Finally, secondary data - the result of interpretation of primary data – used in this paper are
mainly books, newspapers, news, articles and documentaries. Data, i.e. “known facts or things used as
basis for inference and reckoning” and also “fleeting and partial glimpse of events, opinions, beliefs or
conditions”, are ways of getting closer to reality and understand the social world (Ibid.).
2.4. LIMITATIONS
Various scholars have conducted studies about microcredit as a development tool and poverty
alleviation policy making use of impact assessment (Pitt & Khandker 2003). These studies verify the
impact of microcredit on poor people's living conditions through the increase/decrease of household
consumption (Roodman & Morduch 2009: 1). However, this research is based on field work to
investigate the impact of microcredit on income, family well-being, empowerment and social capital.
Time and space are the main limits of this research because I would have liked to develop more deeply
9
FINRURAL is a Bolivian organization which group microfinance institutions with the aim of development and is
committed to evaluate impacts of microcredit.
14
some impacts on the social capital and its influence on other factors. For instance, there are various
experiences of solidarity in the popular economy that are worthwhile to be mentioned and analyzed.
Nevertheless, the purpose of this social research is to give an idea of the extent and the complexity of
this world, and, obviously, to raise new questions.
As mentioned before, some limitations are related to the approaches used to evaluate the
impacts. Indeed, the sample is not representative but “no sample will be exactly representative of a
population” (Walliman 2006: 80). As I will show in the section “case study”, nevertheless the sample
respects more or less the characteristics of the represented population. On the other hand, the sample
does not include people that failed and were expelled from the microcredit program or people that
voluntarily decided to leave it. The reasons can be due to the fact that people started to work as an
employee or did not need credit anymore. Furthermore, I interviewed only people from Santiago even
if I am speaking about the impact on people in Chile. Even if it would have been interesting to
interview people from different areas, especially rural, costs and time represented my limitations. For
this project, I assumed that there are more similarities than differences between people from different
regions of Chile in terms of income, education, economic activities and so on. Indeed, first of all, 6
million out of 17 of Chileans live in Santiago (World Population Review). Among the regions of Chile,
the levels of informality of microentrepreneurs vary from 40 to 50% (Ministerio de Economia,
Fomento, Turismo 2013: 7). Even if agriculture and fishing are spread in different areas, nevertheless
they are mainly informal and cannot benefit of credit of banks or MFIs with a social mandate which do
not offer this type of credit. Moreover, the methodology used by the institutions of microcredit tends to
be repeated for all the regions. For all these reasons, I assumed that the interviewees from the area of
Santiago could represent Chilean microentrepreneurs in general.
In regards to the method to evaluate the impacts, I chose to use the so-called before-after which
presents various limitations such as the impossibility to have a comparison between the individual
which received the credit and the one who did not. Indeed, it is impossible to see the impact on people
without the credit because this approach would have been time and cost consuming.
Other limitations are attributed to the interviews since different methods were utilized. Indeed,
the focus group represented the best way to interview people that are used to work in group.
Nevertheless, these interviews are not deep as those conducted through a personal communication. On
the other hand, telephone interviews represented the most difficult method because people were quite
reluctant to speak on the phone, specifically in personal matters such as self-esteem.
15
With regards to the bibliographic material, there are not many studies about Latin America and,
in particular, about Chile where there is lower poverty compared to other Southern countries. The
material available is mainly about Colombia, Peru and Bolivia where the reality of microfinance is
more developed in terms of services delivered to the clients and studies on impacts.
Furthermore, another limit that I would like to highlight is due to my participant observation.
The language and culture can represent a limitation when the social researcher conducts her/his
interviews because some terms utilized by people are related to social and cultural constructions.
Another limitation is due to the translations carried out during this paper. There is always a chance for
misinterpretation when reading the interviews.
16
3. THEORETICAL AND CONCEPTUAL FRAMEWORK
In order to investigate the impact of microcredit, concepts and theories will be employed as they
“provide a framework within which social phenomena can be understood and the research findings
can be interpreted” (Bryman 2012: 20). A definition of theory as “the abstract statements that make
claims about the world and how it works” (Walliman 2006: 60) constitutes the backdrop of the
social research in combination with concepts. Walliman (2006: 6) further elaborates that “the
building blocks of the theory are usually abstract and cannot be directly measured”, and therefore
concepts are used to complement the theory. In this section, the concepts of poverty, inequality,
informal economy and development will be illustrated in a way that “everyone reading the work
has got the same idea of what is meant” (Ibid.: 61). Finally, through the theoretical approaches of
neoliberalism and solidarity economy, microcredit will be illustrated.
3.1 CHOICE OF THEORETICAL APPROACHES
I chose the theoretical approaches of neoliberalism and solidairty economy that function as a
backdrop of my social research. The differentiation realized by some books among MFIs led me to
think the approach utilized in the light of theories. I could read that microcredit was associated to a
neoliberal tool based on the personal struggle of the individual. On the other hand, during an interview,
I had the possibility to listen some information about Solidarity Economy. The choice is due to the fact
that these two approaches show different points of view about what poverty is and how to face it. I took
into consideration also other theories such as those about human needs of Max-Neef. Nevertheless, I
decided to develop more the concept of solidarity which I started to notice in people's behaviors during
my work.
3.2 POVERTY AND INEQUALITY
The following section aims to define poverty and inequality as the starting point of this social
research. In order to do so, first, historical and current trends will be highlighted; furthermore, a
definition of poverty and inequality will be provided in order to share a common understanding.
Finally, two approaches of poverty will be presented.
17
3.2.1.
HISTORICAL AND CURRENT TRENDS
After the Second World War, according to the neoliberal argument, the world witnessed a
dramatic economic growth and positive trends such as a fall in poverty and inequality. During the
1980s, phenomena such as globalization of the world economy and the implementation of free-market
policies increased the level of prosperity on a global level (Wade 2011: 375-376). According to Martin
Wolf10, globalization as global economic integration is the engine of development and the liberalization
of markets as a solution for issues such as poverty and inequality (Wolf & Wade 2002). The necessity
to open the markets, impose neoliberal policies and to integrate into the global economy represented
the solution for improving issues such as poverty and inequality. Nevertheless, the anti-neoliberal
argument expresses its criticism against globalization and neoliberal policies. Indeed, the stated
improvements of growth and the reduction in poverty and inequality on a global level were criticized
not only in developing countries but also in the developed ones (Wade 2011: 376). Nowadays, even the
World Bank, who is a supporter and promoter of neoliberal policies, declares that although poverty
globally decreased in the last three decades, “rising inequality and social exclusion seems to
accompany rising prosperity in many countries” (Chandra 2013). Ignoring for a moment the data
related to the level of poverty and inequality, there is a quite widespread consensus that poverty and
inequality are still current issues. On the other hand, it is not just a matter of quantitative trends related
to economic indexes such as income, but also of new qualitative aspects that poverty assumes
nowadays.
For the purpose of this paper, I employ Razeto’s classification of poverty although I
acknowledge that there are many other authors and viewpoints on how to classify poverty. According to
Razeto, there are two types of poverty which characterize a society: the residual and the transitional.
The first can be considered as structural poverty where people reside for a long period of time and are
basically “trapped into poverty” (Chronic Poverty Research Center website). These people live below
the poverty line, suffer various deprivations, and, without interventions, will be likely poor also in the
future (Ibid.). According to Razeto, whose focus is on developing countries especially in Latin
America, this type of poverty has its roots in the re-arrangement of economy and of the social structure
in the 1980s. Indeed, certain categories of people such as indigenous, farmers and artisans, attracted by
the job offers of the modern sector of the towns, left their traditional way of living. Nevertheless, some
of them could not integrate into the private sector because they could not utilize their skills but also
10
Economic columnist of the Financial Times
18
because of the demographic boom and the process of urbanization (Razeto 2006).
The other type of poverty called transitional or short-term poverty consists of people “who
move in and out of poverty, or only occasionally fall below the poverty line” (Chronic Poverty
Research Center website). Razeto defines the transitional as all of those people who reach to get in the
train, i.e. who are part of the formal workforce and consumers in the market economy, and then are
excluded from it throughout unemployment, underemployment and loss of social assistance (Razeto
2006). On the other hand, people that are transitionally poor – even if it is not clear how much time is
considered “transitional” - own more instruments compared to people that are chronically poor. In the
empirical part, these concepts will be related with the case of Chile and the case study. Nevertheless,
after having analyzed the trends of poverty, in the next section a definition will be provided.
3.2.2.
DEFINITION F POVERTY AND INEQUALITY
The debate on the improvement of poverty levels and inequality highlights the importance to
define the concepts of inequality and poverty. With respect to inequality, in few words, it can be
defined as “an indicator of how material resources are distributed across society” (OECD 2011: 66).
The causes of inequality of income can be endogenous or exogenous. The first can “be best referred to
a set of circumstances or characteristics intrinsic to individuals”, e.g. the personality, which can be
influenced by the social and cultural environment, or physical differences such as the gender (CharlesColl 2011: 18-19). Exogenous factors can be education, land distribution, immigration, economic crisis
and globalization (Ibid.: 20). With regards to education, “a society with a poor access to education
could find itself in a situation in which the few who could obtain education and acquire skills will
allocate in working positions that offer high salaries” (Ibid.). Hence, inequality can be dangerous for a
society because it leads to discontent in the society together with poverty (Ibid.).
In terms of defining poverty, there are different definitions from various institutions and
scholars that correspond to two different approaches: the mainstream and the critical alternative. The
mainstream approach includes all the definitions that see poverty as “unfilled material needs such as
food, clean water, sanitation and as an economic condition dependent on cash transaction in the marketplace for its eradication” (Thomas 2008: 472). According to this view, poverty is measured in monetary
terms and is seen as dissatisfaction of basic needs. Hence, “economic growth is identified as necessary
for combating poverty” because the wealth produced at the top consequently will reach the bottom
thanks to trickle-down effects (Ibid.: 473). For the purpose of this social research, this economic
19
definition of poverty is not sufficient as it only stresses the importance of money. Hence, other
definitions, which consider poverty in a more holistic way, are more complete because they highlight
other aspects of pauperism.
The critical alternative approach conceives poverty not only as unfilled material needs but also
based on “spiritual values, community ties and availability of common resources” (Ibid. 472). In this
way, poverty is identified as the inability “to provide for the material needs of oneself and one's family
by subsistence or cash transactions, and by the absence of an environment conducive to human wellbeing broadly conceived in spiritual and community terms” (Ibid.: 473). Hence, while the mainstream
approach focuses on material needs, the second adds non-material needs which permit the individual
and his family to reach a state of well-being. In spite of several definitions of poverty, I choose to focus
on Max Neef's concept, which is
The traditional concept of poverty is limited and restricted, since it refers exclusively to the predicaments of
people who may be classified below a certain income threshold. This concept is strictly economist. It is
suggested here that we should speak not of poverty, but of poverties. In fact, any fundamental human need that
is not adequately satisfied, reveals a human poverty. Some examples are: poverty of subsistence (due to
insufficient income, food, shelter, etc.), of protection (due to bad health systems, violence, arms race, etc.), of
affection (due to authoritarianism, oppression, exploitative relations with the natural environment, etc.), of
understanding (due to poor quality of education), of participation (due to marginalization of and discrimination
against women, children and minorities), of identity (due to imposition of alien values upon local and regional
cultures, forced migration, political exile, etc.) (Max -Neef 1992: 200).
The employment of this definition is to show the complexity and the multidimensionality of poverty,
which cannot be reduced only to material needs. For the purpose of this social research, I will not go
deeper into this concept but I will make use of some categories during my analysis.
3.2.3.
INDICATORS OF POVERTY AND INEQUALITY
As seen from the two above-mentioned approaches, poverty and inequality are complex and
involve debated concepts that need indicators to be grasped but which can provide just a partial idea of
the phenomenon. The mainstream approaches use more quantitative measures and indicators. For
example, the World Bank measures poverty through the indicator of the incidence of poverty i.e. how
many people live below the poverty line. Nevertheless the numbers do not catch the multidimensional
dimension of poverty (Wade 2011: 383-388). On the other hand the critical alternative approach
considers other dimensions in a more integrated way e.g. taking into consideration nature, common
resources, empowerment (Thomas 2008: 473). Similarly, about inequality, there are different indicators
such as the income share held by the highest and the lowest 20% in order to grasp the breadth of
20
difference (World Bank Data website). Notwithstanding, it is important to bear in mind the multidimensionality of poverty and inequality, which starts with the economic dimension and goes beyond
that.
To conclude this section, the concepts of poverty and inequality are complex and the boundaries
of their definitions are quite blurred. In spite of this, even if the trends are not clear, institutions such as
the World Bank, NGOs and governments consider that poverty and inequality are still challenges. In
my analysis these considerations influence the way to conceive these issues and the necessity to go
beyond mere data and consider the multi-dimensionality of these phenomena in the context of my case
study. In the analysis, the complexity of poverty and inequality will be represented through a multidimensional look at the case study. In continuation, development will be presented in order to show
how there are different approaches to poverty and inequality.
3.3 DEVELOPMENT: NEOLIBERALISM AND ALTERNATIVE APPROACHES
In response to different conceptualizations of poverty, the concept of development, “conceived
only within an ideological framework” and reflecting “a particular set of social and political values”,
presents multiple meanings and understandings (Thomas 2008: 473). From the 1950s to nowadays,
different definitions and approaches on development have emerged in response to more and more
problematic and complex issues within it, such as poverty and inequality. “How development is
conceived, how development process should be understood to work and how development might be
achieved” is still a matter of discussion (Phillips 2011: 416-419). Therefore, I will introduce two
different approaches, namely neoliberalism and critical alternative, to try to understand and highlight
the complexity of development.
3.3.1.
NEOLIBERALISM APPROACH TO DEVELOPMENT
During the 1970s, neoliberalism became politically and economically the ruling ideology based
on the cornerstone that “human well-being can best be advanced by liberating individual
entrepreneurial freedoms and skills within an institutional framework characterized by strong private
property rights, free markets, and free trade”
(David Harvey in Phillips 2011: 423). Based on
neoclassical economics, the market is populated by rational and self-interested individuals who act in
order to maximize their utility. Hence, market-led mechanisms, liberated by the distortions of public
policies, represent the “pre-requisite of development” because markets are efficient in its use of
21
resources and reward depending on productivity of individuals (Chang 2010: 2; 15). In this way, the
“treatment” for poverty is the further integration in the global economy through trade liberation, and
later wealth, thanks to the “trickle-down” effect, will move to poor people’s hands (Thomas 2008: 477).
Nevertheless, free-market policies have only made a few countries rich so far and most likely, only a
few in the future (Chang 2010: 2;15). These policies are not the solution for all “social evils” which
affect members of a society. Therefore, a more holistic approach is necessary in accordance with the
multi-dimensionality of poverty and inequality.
3.3.2.
CRITICAL ALTERNATIVE APPROACH TO DEVELOPMENT
For the last three decades, wealth, generated by process of liberalization and integration, did not
have the expected trickle-down effects with respect to poor people in developing countries (Chandra
2013). In fact, the polarization of wealth created a bigger gap between a mass of poor and a small
group of wealthy people. This inequality is not “regarded as a problem, so long as the social and
political discontent which inequality engenders is not so extensive as potentially to de-rail
implementation of the liberalization project itself” (Ibid.: 477).
As has been argued by opponents to neoliberal development strategies, there has been a failure
in the success of development programs. Accordingly, various NGOs, foundations and social
movements have conceptualized an alternative conception of development, which started to flourish
since the 1970s. The main argument is the need of new endogenous processes of development which
utilize the internal resources in order to satisfy both material and non-material needs (Ibid.: 479). This
process has to occur with respect to the environment and with re-taking control of their local
communities (Ibid.: 479). Damaged by the globalization process and its inequity, that mass of people,
dis-empowered and dominated, will take the control of their life. New aspects of development emerged
such as sustainability and the importance of intra- and inter- generational equity, environmental impact,
gender integration, and attention to indigenous people.
Nevertheless, the critique to the liberal system is not a recent subject started with the alternative
approaches in the 1970s. In fact, during the 1940s, Karl Polanyi 11, through his use of a multidisciplinary approach, criticizes market societies. In this part I will employ Karl Polanyi's concepts of
reciprocity and counter movement in order to show his influence in the conceptualization of
movements that go under the name of Solidarity Economy, which will be the next section.
11 Karl Polany (1886-1964) sociologist and anthropologist (Encyclopedia)
22
According to Polanyi, the economy is “a instituted process of interaction between man and his
environment, with results in a continuous supply of want satisfying material means” (Granovetter &
Swedberg 2001). In this definition, contains the concept of “embeddedness”, that is economic systems
are embedded in social relations. Through his anthropological studies, in the economic systems Polanyi
identifies three forms of integration between society and the economy when the market has not yet
prevailed (Polanyi 1944: 47). These three forms of integration can coexist but, as we will see later, the
dominance of one or another system, can lead to a disequilibrium. Firstly, reciprocity is based on
symmetrical exchanges of goods and services within the family and kinship (Ibid.) In other words, it is
a matter of give-and-take among individuals whose relations are based on trust. Secondly,
redistribution is based on the “centricity” of a dominant authority that collects goods and services and,
consequently, redistributes them among the community (Ibid.). Finally, market exchange is a system of
allocating resources based on price and peripheral in the societies studied by Polanyi until mercantilism
(Ibid.). After the Industrial Revolution, the market exchange began to prevail over the other two forms
of integration. In the 21st century, the power of self-adjustment of the markets entailed a transformation
towards the so- called “Market Society”. Indeed, in Polanyi's words,
the idea of a self-adjusting market implied a stark Utopia. Such an institution could not exist for any length of
time without annihilating the human and nature substance of society; it would have physically destroy man and
transformed his surroundings into a wilderness. Inevitably, society took measures to protect itself, but whatever
measures it took impaired the self-regulation of the market, disorganized industrial life, and thus endangered
society in yet another way (Polanyi 1944: 3-4).
In other words, the dominance of the market over the other forms leads to the “disembeddedness” of
the economy from social relations. As a matter of fact, the self-regulating market does not need the
interference of any other institution, and now the market economy embeds social relations on the
contrary to before. (Ibid.: 57). The effects are destructive because the logic of utilitarianism and profit
maximization replace the forms of reciprocity and redistribution (Ibid.: 33). Hence, man and nature,
which are essential parts of the process of production, are also absorbed in the market system and give
them a price. Nevertheless, with the expansion of the market, a “counter movement” emerged to protect
the society, “a reaction against a dislocation which attacked the fabric of society, and which would have
destroyed the very organization of production that the market had called into being” (Ibid.: 130). The
counter movement consisted in different political and institutional forms such as fascism, communism,
the New Deal and so on, which consisted in “checking the action of the market in respect to the factors
of production, labor and land. This was the main function of interventionism” (Ibid.: 131-145).
23
The logic of individualism, profit maximization, and utilitarianism due to the dominance of the
market compared to the other two spheres shows the disequilibrium among state, society and market.
Liberalism and neoliberalism run into a contradiction because they destroy the society, which needs to
be rebuilt through a counter movement. The latter consists in a way to defend the society from the self
destruction (Coraggio 2014: 20-21). In this panorama of counter-movements, I chose to sustain the
analysis with the solidarity economy approach. In spite of its limitation that will be illustrated later, in
my opinion it represents an adequate way to bring back the equilibrium between the three forms of
integration. The aim of the solidarity economy is to overcome the individualistic and utilitarian
conception and replace it with the recognition of the social nature of the human being and of the forms
in which he performs his action.
3.3.3.
SOLIDARITY ECONOMY
The solidarity economy is a movement which initially emerged in Latin America as a reaction
against neoliberal policies of authoritarian regimes and then spread worldwide through the diffusion of
activities that share some characteristics. Nevertheless, it is difficult to make a definition that includes
all manifestations. Therefore, the solution utilized in this social research is to leave it open. Indeed, the
definition below tries to grasp this elusive concept considering the multiplicity of practices in the
world:
Solidarity economy designates all production, distribution and consumption activities
that contribute to the democratization of the economy based on citizen commitments
both at a local and global level. It is carried out in various forms, in all continents. It
covers different forms of organization that the population uses to create its own means
of work or to have access to qualitative goods and services, in a dynamics of reciprocity
and solidarity which links individual interests to the collective interest. In this sense,
solidarity economy is not a sector of the economy, but an overall approach that includes
initiatives in most sectors of the economy (Allard & Davidson 2008: 6).
To further develop the abovementioned, the solidarity economy includes all the economic alternatives
which emerge from the civil society whose focus is the humankind as individual and social being
(Ibid.: 4-6). The aim of these initiatives is not only economic gains but also social benefits, e.g. in
terms of relations. As highlighted by Polanyi, these economic alternatives, which exist “in the belly of
the neoliberal market economy”, place in the center different types of relationships with respect to
those of the market economy and “involve varying degrees of cooperation, association and solidarity”
(Utting et al. 2014). Indeed, the aim of these practices is to embed the economy in the social relations
24
that is to bring back the importance of recognition of identity of people which participate in the
exchange. In this way, the exchanges are not anonymous anymore but charged with identities.
Additionally, profits and utility are replaced with other types of wealth and values which are not
necessarily related to money but concern relationships between human being and the Nature. In regards
to the latter, people are “co-users of natural resources and co-responsible for the conservation of
Nature” (Arruda in Allard & Davidson 2008: 4). This multiplicity of economic alternatives “already
planted seeds of a new economy, an economy of cooperation, equality, diversity, and selfdetermination: a solidarity economy” (Miller in Allard & Davidson 2006: 7).
In order to have a more empirical understanding, here are mentioned some practices that go
under the name of solidarity economy. According to Miller12(2005: no page), “these are our economies,
people’s economies, the economies that we build with our everyday lives and relationships”.
He lists some experiences such as gift economies i.e. giving resources to other people with a timeless
consideration, barter economies based on trade between neighbors and friends, and collective
economies which consist in the ownership and control of resources (Ibid.). Furthermore, Luis Razeto
adds that solidarity economy offers alternatives not only for people of the collective society but also to
other levels, that is the market and the state (Razeto n.d.). Indeed, businesses that incorporate social and
ethical aims, and public institutions which recognize the importance of solidarity economy are included
in this indefinable category.
To conclude, these practices, which emerge in different parts of the world, at a local and global
level, conceive an economy at the service of people that is embedded again in the society. As
highlighted throughout this section, these practices that go under the name of Solidarity Economy
represent a form of equilibrium between the three forms of integration, that is reciprocity, market
exchange and redistribution. In the next section, the Popular Economy as a segment within the market
economy will be presented in order to show the popular reality and its relationship of solidarity.
3.3.3.1.
Popular Economy
The necessity to survive and meet the basic needs of people, which have been socially and
economically marginalized from the modern life, entails the establishment of a heterogeneous variety
of economic activities. The increase of these activities results in an inflation of what Razeto calls the
“popular economy” (Razeto 2006.: 15). We call “Popular Economy” all the economic activities and
12 Ethan Miller
25
social practices developed by the popular sectors with the aim to satisfy material and non-material
needs through the employment of their work and available resources” (Icasa & Tiribia 2003: 173). The
majority of these activities are also part of what is called the informal economy that is “the collection of
unregistered firms which do not pay taxes or observe laws, including those providing job security”
(Chang 2010: 19). Nevertheless, it is not necessarily that these two concepts overlap because there are
several experiences of popular economy where the microentrepreneur is registered and, consequently,
taxed as we will see in the case study. In spite of this, in this part, I will use the two terms
indiscriminately and according to the author’s choice. The concept of the “informal economy” became
part of development studies since the 1970s when the phenomenon of “urban, informal, unstructured
economic activities (…) allowed masses migrants to survive in Third World metropoles: small street
businesses, production, service workshops and so on” (Nyssens 1997: 173).
According to Razeto (1993: 13), the reasons for the emergence of popular economy are due to
the structure and to international competition. Indeed, small local enterprises are excluded from the
formal market because they cannot stand the competition with foreign enterprise. Moreover, continuous
technological innovations modify work requirements, shrinking the pool of available jobs (Ibid.). For
these reasons, just some sectors and actors take advantage of the modern economic competition,
therefore excluding from the system individuals and enterprises which are not enough efficient to
compete (Ibid.: 13-14). Additionally, following the introduction of neoliberal policies, in order to
reduce public spending, the distributive role of the state was reshaped, causing the inability to provide
for social services to new unemployed workers (Razeto 2006: 14; Chang 2010: 19). In spite of the
exclusion and marginalization of people, in order to not remain “outside” the process of modernization,
developing countries struggle to be updated in a continuous process of “catching up” to developed
economies (Ibid.: 12-13). On the other hand, the informal economy cannot be ignored as a marginal
phenomenon. “The plurality of modes of organization which are intermeshed in socio-economic life”
has resisted for centuries and represents an “active economic subject (Nyssens 1997: 171-177).
In a theoretical viewpoint, the Popular Economy becomes a promoter of development with its
mode of socio-economic organization and a challenge to market-state synergy (Ibid.: 182). On one side,
from a liberal point of view, popular economy represents the “ideal realization of perfect competition”
because there are no barriers imposed by the state e.g. entry barriers and protection for workers. Indeed,
in the popular economy, the perfect competition rules and people look for the profit maximization.
Nevertheless, as discussed above, it is not a transitional phenomenon ready for a process of
26
modernization, rather these modes of production “offer alternatives to mass production and are
embedded in dense social networks in some regions (Ibid.: 185). Hence, according to the Solidarity
Economy approach, they represent economic alternatives in the market economy, and as well promote
development. Indeed, bringing back the Polanyi's forms of integration, these economic alternatives
embedded in social relations constitute a hybrid between these “poles” as Nyssens call them.
Illustration 1: the three poles
Source: Nyssens 1997: 187
In illustration 1, the three forms already seen in the Polanyi's theory are shown and briefly explained.
As showed in the illustration, Nyssens (1997: 187-188) explains that economic organization can be
seen as structured on these three poles. Firstly, the capitalist pole is constituted by market exchanges,
competitive relations between individuals and exploitation of nature with the aim of the maximization
of profits. Secondly, the public pole consists of relationships dominated by central authority and
subsidiary relations with individuals. Thirdly, the community pole is based on human factors (labor
factor), which are relationships characterized by reciprocity and the common ownership (Ibid.). In the
popular economy, these modes of organization represent a hybrid between these three poles. As a
27
matter of fact, the practices in the popular economy present characteristics that are common to the
market logic and the community pole, and they rely on the state intervention. Therefore, as said before,
these activities are embedded in social relations because people in the popular economy share the same
identity of poblador13 but, at the same time, they can also develop more competitive relationships with
other businesses. While there are forms of common ownership, for instance when more people work
together in a microenterprise, nevertheless, there are many cases of individual ownership (Ibid.).
Moreover, the popular economy cannot live outside the synergy market-state; in fact there is
cooperation with these two institutions. Indeed, these economic alternatives recognize the importance
of a “partner state. Through subcontracting and competition, the market sector is directly interrelated
with the popular economy creating useful bonds (Nyssens 1997: 190-191). On the other hand, the state
can recognize their socio-economic role and support local initiatives in order to ameliorate individual
and communities conditions (Ibid.). The recognition from the political system of a reality which
consists in not only a “source of employment” but also “of social cohesion” could incite popular
economy to be an active agent of development (Ibid.: 193-194). Indeed, as said before, getting back
Polanyi's concepts, these socio-economic modes of production can be considered as a hybrid between
the three poles: state, market and community. This equilibrium condition can bring about changes not
only at a local but also at a global level in a possible future. Indeed, a bottom up grassroots counter
movement can rise from the popular economy and influence the market economy from within.
Nevertheless, the panorama of experiences in the popular economy is various and not all of
them have an intrinsic equilibrium between the three poles. According to Razeto (1993: 11), these
modes of production include “a variety of experiences” e.g. independent economic activities with small
scale production and commercialization mainly in the house or the street, a microenterprise managed
by an individual, a family or two or more partners, and “popular economic organizations”. The latter
consists of “small groups or organizations of people and families who manage together their scarce
recourses to develop, in terms of cooperation and mutual help, activities which generate income or
provide goods and services which satisfy basic needs of job, food supply, health, education, housing
and so on” (Razeto 1993: 11). As Razeto writes (1993: 15), Popular Economic Organizations Organizaciones Econòmicas Popular (OEP) can be potential subjects and agents of the creation of a
solidarity economy. Secondly, they can lead a social organization in the popular economy. The common
characteristics of these organizations are (Ibid.):
13 Inhabitant of a village
28
1. their popular origins among poor and marginalized people;
2. they are “personalized organizations” i.e. small groups of individualities (Ibid.);
3. they are technically organized with a objective, an organization of recourses, planning of
activities.
4. they are economic organizations even if they organize also social activities;
5.
they are directly involved in solving problems of their members through mutual help and selfdevelopment;
6. relations between members and values are characterized by solidarity i.e. cooperation, trust and
community;
7. they are “participative, democratic, self-managed, autonomous” (Ibid);
8. they combine economic, social, educational, personal and group development activities
including political and religious action;
9. they act in a different and alternative way compared to the capitalist and individualist form in
order to contribute to social change;
10. they are horizontally integrated through connections and network, and vertically with NGOs
and public institutions.
Several benefits are related to cooperation e.g. better prices of supplies and learning new methods of
production, that can be extended to the popular economy creating “a sector of solidarity economy” that
could positively influence the national economy with its values, creativity and dynamism (Ibid.: 17). In
conclusion, all these practices aim to transform the popular economy into solidarity economy in order
to alleviate poverty (Ibid.). Therefore, economic initiatives which aim to satisfy economic and social
needs are called by Razeto (2006) “Popular Economic Organizations” and they represent an
equilibrium between the three poles. Indeed, at the center there is a group of individuals characterized
by clear identities and relationships based on cooperation, reciprocity and solidarity. These
organizations utilize the local resources in order to satisfy not only economic but also social needs of
people in the group. Moreover, they are horizontally but also vertically linked with other organizations.
Hence, these forms represent the hybrid of the poles and can be identified as one of the promoter of
development and influence the structure of the market economy.
To conclude this section about theories, different conceptions of poverty lead to various
interpretations of development influenced by the political and economic context. The critique to the
neoliberal approach to development led to the appearance of alternative approaches which consider
29
development in a more holistic way. One of them is the Solidarity Economy, a set of practices whose
aim is to satisfy not only economic but also social needs. These initiatives can be found in the popular
economy where there is a market logic but within a social context. In the next section microcredit will
be presented as an instrument that can promote these types of initiatives.
3.4 MICROCREDIT
In this section I will present briefly microcredit as a development tool that promotes
economic and social development. This will be followed by a critique that will be utilized in
the analytical section.
In spite of its ancient origins, the modern conceptualization of microcredit dates back to the
experience of the Grameen Bank instituted by Muhammad Yunus 14 during the 1980s. Microcredit, as
said in the introduction, is a small loan that poor people invest on their income generating activities in
order to be able to face personal and familiar needs. Implemented in Bangladesh, this instrument was
subjected to rapid diffusion in other developing countries thanks to the support of the international
development community. The culminating moment was represented with the award of the Nobel Peace
Prize to Yunus and the Grameen Bank for “their efforts to create economic and social development
from below” (Grameen Bank website). Observing the context of poverty which characterized the
country, Yunus noticed that poor people used to strive to face their needs through the use of their
personal abilities and social capital (Becchetti 2008: 10). Nevertheless, these people depend extensively
on local moneylenders which were the only ones who used to lend money to them. Hence, the idea to
institute a bank that could lend money to poor people considered “unbankable” represented a revolution
for development programs (Ibid.).
Studies on improvements of income and consumption conducted during the 1990s reinforced
the importance of microcredit as a development tool (Roodman & Morduch 2009: 1). On the other
hand, beyond the material results at a personal and familiar level in terms of income and consumption,
diverse benefits are associated with microcredit. First of all, there are benefits relating to trust. Indeed,
a credit offered to people that are socially and economically marginalized can generate improvements
at a personal level because the institution support and encourage the individual (Becchetti 2010: 65).
Moreover, several studies demonstrated positive effects on empowerment, especially for women, in
14 Professor of Economics who instituted the Grameen Bank, the Bank of the Poor.
30
terms of autonomy of taking decision, active participation in the community, self-esteem (Becchetti
2010: 63). Other benefits are related to the methodology of village banks 15 with respect to the
individual credit. Indeed, the guarantees of the traditional banking systems are replaced by the moral
collateral, that is the responsibility of the members for each other credits (Grameen Bank website).
This methodology has also the aim to promote cooperation and solidarity between people in the group
improving the social capital. In this way, the social relations also lead to positive benefits a a personal,
familiar and communitarian level in a virtuous circle. Therefore, microcredit as an instrument of social
and economic development has effects that go beyond the material results, but influences also the
empowerment and social capital which in turn generate positive changes.
3.4.1.
CRITIQUE TO MICROCREDIT
In spite of the spread of microcredit in the world, not only in developing but also in developed
countries, a harsh critique threatens the basis whereon microcredit is built. First of all, according to
scholars such as Bateman and Chang, the Grameen model based on a poverty-lending approach was
substituted by a financial systems approach due to the commercialization of microcredit. (Bateman
2010.). Indeed, during the 1990s, the dominance of neoliberal ideology entailed changes to the way
how microfinance institutions worked. The
new wave of microcredit entailed that NGOs were
substituted by commercial banks, low interest rates by high interest rates, and the aim to help poor
people by the maximization of profits (Ibid.). Microfinance institutions that before were subsidized by
the state were obliged to adapt to the idea of “earning their keep on the market” (Ibid.). In this way, the
logic of microcredit to help people to get out of poverty was replaced by pure economic interests which
consider credit a source of gain.
In Bateman's opinion, nowadays microfinance is built on myths of the past before the
commercialization of microfinance destroyed the system (Ibid.: 9). These myths are briefly outlined
because they will be part of the analysis. One of the myths related to microcredit is the fact that loans
are not used to be invested in income-generating activities but rather to facilitate consumption of the
individual and the family (Bateman 2010: 10). Loans, because of their small amount, support the
consumption leading to greater levels of poverty (Ibid.). Another myth is related to the positive impact
of microcredit on empowerment. Indeed, according to Bateman (Ibid.: 14) microcredit leads people to
15 Village Banks: “Village banks are community-based credit and savings associations. They typically consist of 25 to 50
low-income individuals who are seeking to improve their lives through self-employment activities” (Grameen website)
31
accept working conditions and salaries lower than those offered by salaried jobs (Ibid.: 14). Other
critiques are related to the impact assessments realized in the 1990s which have been revised during
2000s showing undefined results (Roodman & Morduch 2009: 39-41). According to these analyses,
income and consumption do not seem to have a clear link with microcredit and even less between
microcredit and reduction of poverty (Niccoli & Presbiterio 2010: 70). Even the CGAP, a global
partnership whose aim is the financial inclusion of poor people,declares that:
If the case for microfinance depended on whether it was lifting people out of poverty, then the
appropriate response right now would probably be to declare a moratorium on support for
microfinance until further research clarifies this question more (Rosenberg 2009).
The stress on individual entrepreneurial activity, no state intervention and social welfare
programs, “flexibilization” and disempowerment of the labor market, leads to conclude that microcredit
is a vehicle of neoliberalism (Ibid.: 24-25). Microcredit permits that poor people can obtain the control
on their life and purchase social services such as healthcare and education (Bateman & Chang 2009:
26-27). In this way, there is no necessity of the re-distributive role of the state because microcredit will
lead poor people to buy what they need on their own. Microcredit “is based on an attractive but false
premise that poor people can make themselves richer providing they have access to credit. But wealth
creation, outside of fairytales, is very rarely the result of individual effort. Rather it is a collective
endeavour – requiring skills and knowledge – in institutions such as companies, co-operatives”
(Bunting 2011).
To conclude, microcredit, in its original conceptualization, promotes economic and social
development for poor people in terms of income, empowerment and social capital. On the other hand, a
critique seems to consider microcredit as a neoliberal vehicle with dibatable effects on poor people's
living conditions.
32
4. CHILE AND MICROFINANCE
In this section, an historical section about Chile in the last three decades will introduce issues
such as poverty and inequality. Then, economic initiatives in the popular economy will be followed by
the presentation of microfinance institutions.
4.1 HISTORY OF CHILE
In this section, a brief history of Chile will be illustrated in order to introduce issues such as poverty,
inequality and popular economy.
The frustration for free-market capitalism which ruled the country before 1970 lead to the
victory of the socialist Popular Unity party, headed by Salvador Allende. This represented the “unique
experiment in making a socialist revolution by constitutional means” (Williamson 2009: 505). During
his three years of government, Allende started a process of nationalization: the copper-mines, the
telephone, the telegraph company and banking (Klein 2007: 13). Beyond nationalization, the socialist
government struggled to realize a land reform which consisted in the redistribution of the estates to
small farms and cooperatives (Williamson.: 501-502). As showed in the graph 1, the annual GDP
increased slightly during the first two years of the socialist government of Salvador Allende but, in the
next two, the variation was negative.
In 1973, a coup d'etat overturned the social government leading to the neoliberal period. Once
in power, General Pinochet pushed for an “ideological revolution” in order to bring order into the
“chaotic” situation created by the socialist policies. First of all, it was necessary to extirpate socialism
and replace it with free-market capitalism (Williamson 2009: 506). The implementation of
neoliberalism policies consisted in free trade policies, privatizations of the public sector and fiscal
discipline (Williamson 2003: 505). During the process of implementing the neoliberal policies, the
OPEC oil crisis erupted and the GDP of Chile declined dramatically in 1975 (Ibid.: 506). The following
years showed positive trends with an increase of economic growth, the fall of inflation and the recovery
of exports. However, it increased the level of unemployment and inequality (Ibid.: 506-507). As a
matter of fact, the neoliberal policies created discontent among different social classes, especially
among poor people who could not afford their previous lives (Klein 2007: 15-16%). The world
recession from 1982 to 1984 created a deficit in the balance of payment due to high rate of exchange,
extreme quantity of private borrowing to foreign banks and few productive investments. This provoked
not only a financial crisis but also the nationalization of the foreign debt giving “the collective
33
responsibility of the people of Chile to pay off the mountain of credit amassed by the privileged
conglomerates during the boom of the late 1970s” (Williamson 2009: 507). Nevertheless, in the second
half of the 1980s, the Chilean economy started the recovery: increase of economic growth through
export-led policies, decrease of the foreign debt led to declare that neoliberal policies reached their
success (Ibid.: 509). Although this may be true, as demonstrated in graph 1, the levels of poverty and
inequality got worse during these years leaving a consistent part of the population “outside” the
“economic miracle” (Ibid.).
Since the 1990s until 2000s, the party Concertacion por la Democracia which grouped the
Christian Democrats, Socialist and various left parties, ruled the country. Firstly, Patricio Aylwin,
president of the government, decided to combine free-market policies with measures to reduce poverty
and inequality (Williamson 2009: 578). Then, the socialist Ricardo Lagos was elected president in
2000s almost maintained the same economic policy but with a greater attention for the poor sectors
through a social welfare scheme. Moreover, he introduced a divorce law and permitted the trials against
the armed force for violations of human rights (Ibid.: 579). In 2005, the Concertacion, headed by
Michelle Bachelet, won the elections changing the rules of the usual game: she was a woman and also a
member of the socialist party (Ibid.). During her government, she faced the discontent of students and
problems related to public transport which penalized her in the next presidential elections (Ibid.).
Indeed, in 2009, after 20 years of left wing rule, the Alliance for Chile, headed by the rightist Sebastian
Piñera won the elections. Criticized for his populist social measures similar to those of the previous
government regarding maternity leave and the free health insurance for retired people belonging to low
social classes, his government was characterized by economic growth and low unemployment (Cabalin
2011). Nevertheless, protests and strikes in Chile during his mandate demonstrate that other issues are
getting more and more important: “citizens are going to the streets to demand better education, gay
marriage, and the protection of the environment. They are asking for changes in one of the most
unequal societies in the world” (Ibid.).
Recently in 2014, Michelle Bachelet won the elections with several promises such as the free
education reform, the improvement of health care and the decrease of inequalities (BBC News 2014).
34
Graph 1: GDP growth (annual %)
Figure 1: GDP growth (annual %). Source: World Bank Data
Source: World Bank Data
4.2 POVERTY AND INEQUALITY
As mentioned in the theoretical section, poverty is a multidimensional concept and, because of
its difficulty to grasp, the income and consumer spending are chosen to measure the level of material
well-being (Ballesteros & Valenzuela 2011). In the graph 2, it is shown the poverty headcount ratio at
the national poverty line (% of population) i.e. the percentage of the population which lives under the
national poverty line – related to the cost of a food bundle – considering the income and consumption
of the household (World Bank Data). The national poverty line permits a comparison of different years
of the same country over time but not different countries (Ibid.).
While during Allende's government, socialists backed a state-led development strategy and a
focus on issues as poverty and the unequal income distribution, these policies were completely
overturned by the next government.
Throughout the first year of Pinochet's mandate, the shock provoked by the coup d'etat and the
35
sudden change of economic policies, aggravated the level of inflation worsening the poverty in the
country (Klein 2007: 14). In order to explain the situation in the country during these years, Gunder
Frank, asserts,
Roughly 74% of its [Chilean family] income went simply to buying bread, forcing the family to cut
out such “luxury items” as milk and bus fare to get to work. By comparison, under Allende, bread,
milk and bus fare took up 17% of a public employee's salary (Ibid.: 15).
The high price of food due to inflation and the removal of the school milk program aggravated the
health conditions of people and also the school attendance (Ibid.). Moreover, the reduction of trade
barriers caused an increase of imports, and, consequently, the failure of local enterprises which could
not compete with foreign ones (Ibid.). The result was that the levels of poverty increased during the
first years of Pinochet's government especially in 1975 when the GDP fell by 12.9% and the rate of
unemployment reached 17% - three times the levels of the 1960s (Williamson 2009: 506). In 1988, as
shown in the graph 2, people who lived under the poverty line were almost the half of the population.
What is relevant to note is the level of inequality during these years. As a matter of fact, the level of
inequality in 1987 was really high, indeed the top 5% of the population gained more that 80% of the
national income (Klein 2007: 17; Williamson 2009: 506). As can be seen from the graph 2, people who
lived below the poverty line decreased from 45% in 1988 to 20% in the 2000s. This is due to social
policies and the result of economic growth reaching 14% in 2011 and 11% in 2013 (World Bank;
Barcena et al. 2013: 17).
36
Graph 2: Poverty headcount ratio at national poverty line (% population).
Source: World Bank Data
In terms of income distribution, graph shows that 20% of the highest-income people received the
bigger share of income which in 1987 was 61.4%, and remained more or less stable until 2006 when it
fell to 57.5% (World Bank Data). On the other hand, the lowest-income people received almost 3% of
the national income which started to raise in 2006 (Ibid.). Nowadays, Chile still presents high income
inequality compared not only to the other OECD countries (apart from Mexico), but also to Latin
America where Brazil, Argentina, Venezuela and Peru are significantly reducing the gap between rich
and poor in accordance with CEPAL data (OECD; Barcena et al. 2013: 20).
37
Graph 3: Income share held by highest and lowest 20%.
Source: World Bank Data
Nevertheless, although Chile is growing at a rate of 3-4% annual GDP, the level of inequality decreases
slowly and it is still really high compared to other Latin American countries. In fact, according to some
surveys, the feeling of vulnerability related to the labor market, health, education and social security
programs is still widespread among the population (Contreras 2007: 376). Therefore, other factors are
influencing the levels of inequality beyond the economic ones. Indeed,
Segregation in neighborhoods and schools, for example, is both a cause and an effect of poverty and
inequality, with negative consequences for social cohesion and the opportunities available to the
38
segregated groups. This exclusion includes lack of access to education and the labor market, which
only compounds poverty and inequality and creates poverty traps (Ibid. 378).
In summary, the economic growth and the decrease of the level of poverty are positive
indicators of development but the high inequality reflects the exclusion of poor people not only in
terms of income, but also of education, health, social and economic opportunities (Ibid.: 379).
4.3 POPULAR ECONOMY IN CHILE
Historically, the popular world started to develop in the peripheral urban areas i.e. the villages,
in Chile called poblaciones16, in the 19th century “which generated a “dense 'social productive' fabric
on the fringe of activities of large merchants” (Nyssens 1997: 174). Initially, the popular economy
consisted in groups of families – mainly artisans – who made use of “local and cheap resources” and
provided for their needs such as health care, education, saving and social protection (Ibid.).
In the second half of the 19th century, the arrival of the capitalist industry of the “mercantile
elite”, backed by the state through its regulations, prevailed on the “local social productive” mode
(Ibid.). During 1900, the popular economy, which represented 20% of the national workforce, was
considered to be part of the proletarian class which opposed the capitalist class (Ibid.: 175). The coup
d'etat represented a turning point for the popular economy not only for the political repression of the
traditional associations present in the popular world, but also because the free trade caused the
exclusion of a mass of “new poor” who previously were part of the modern system (Ibid.: 176). The
economic vulnerability of this sector and the arrival of new “participants” gave rise to protests and
resistance against the political repression (Ibid.). During Pinochet's government, “the popular economy
became a powerful means of resistance against the popular world's political, cultural and social
exclusion and its economic precariousness” (Ibid.). Through time, the phenomenon has become more
and more complex, constituted by a heterogeneous reality made up of not only microenterprises but
also “popular economy organizations”17 characterized by different levels of development as shown
below (Ibid.).
16 Poblaciones: popular urban quarters
17 Popular Economy Organizations (PEOs): as mentioned in the theoretical section they are composed by “groups of
pobladores in a given neighborhood [involved] in the production, consumption, distribution of goods and service of
goods and services (Nyssens 1997: 176).
39
Table 3: The structure of the Popular Economy.
Source: Razeto & Calcagni in Nyssens 2007: 177
In table 4, it is shown the complexity of activities present in the popular economy: on the left side there
is the level of development while above there are the different forms of production.
Nowadays, the popular economy is recognized as an “active economic subject”, a source of
employment and revenues (Ibid.). In 2013, the national government carried out an inquiry about the
world of microenterprises in order to inform society the importance of this phenomenon. According to
this study, almost half of the entrepreneurs are informal because they considered themselves too small
to formalize. As well they have difficulty at seeing the positive benefits of this time and cost consuming
process (Ministerio de Economia 2013: 2-3). Dedicated to agriculture, fishing, cleaning service, mining
industry, craft work and commercial sectors, microenterprises in the popular economy are most of the
time motivated by necessity to survive because they cannot find jobs in the formal system. They want
to gain more money or, for women especially, they have to take care of children or elderly people
(Ibid.: 8). It is not an opportunity as it is for formal entrepreneurs, for the choice is almost mandatory in
order to survive. Additionally, a comparison between the formal and informal economy shows that
people of the popular economy have lower levels of education and 65% of them gain less than the
minimum salary18 while in the formal sector, it is just 17% (Ibid.). The social segregation caused by the
income discrimination is reflected not only in the educational field but also in the health system as
shown in the graph 4.
18 The minimum salary in Chile is $210.000 CLP or 378 USD (Direccion del Trabajo website)
40
Graph 4: Distribution of people based on public/private health insurance and income
Source: Gobierno de Chile 2011.
People who belong to the poorest segments of the population are covered by the public insurance
(FONASA) while the private insurers (ISAPRE) are available to the wealthy population. The
investments on the public system are quite scarce and this entails the reduced possibility to satisfy the
demand of extended segments of population that make use of it (Goyenechea & Sinclaire 2013). In the
table 4 i the characteristics of the popular economy compared with the formal sector are resumed.
41
Table 4: Summary of the characteristics of the formal and informal sector of microenterprises
Characteristics
Popular Economy
(Informal Sector)
Formal Sector
Percentage of
entrepreneurs
48,4%
51,6%
Main Reasons
Necessity
Opportunity
Percentage of
enterprises who has 1
worker
74,2%
35,5%
Percentage of
enterprises who has
maximum 2 worker
92,6%
52,8%
Percentage of people
who studied maximum
until the high school
55,3%
84,4%
Source: Ministerio de Economia 2013: 1-15.
4.4 MICROFINANCE INSTITUTIONS IN CHILE
In this section, I will briefly present microfinance institutions in the context of Chile. These
institutions mainly work with economic businesses which constitute the popular economy.
As mentioned before, during the crisis of the 1980s, people, which were excluded from the
formal sector, struggled to find alternative modes of production in order to survive. The world of
microenterprises became visible (Martinez et al. 2009: 143). According to some studies published by
private organizations, the necessity of financial resources represented the barrier to the development of
microenterprises due to the risk and lack of profitability for the local banks. At the end of the 1980s,
some institutions started to offer microloans, such as the Banco del Desarrollo, and a series of NGOs
and foundations (Ibid.: 143-144). The establishment of democracy in the 1990s, the withdrawal of
international funds destined to other poorer countries and the constitution of a state program, named
FOSIS, which offer financial support to microenterprises, established the foundations of the modern
system of microfinance (Ibid.: 144). Nowadays, eleven microfinance institutions are gathered in the
Microfinance Network - so-called “Red para el Desarrollo de la Microfinanza en Chile”-, instituted in
2001, whose mission is to develop the microfinance world through the improvement of interactions
between them and with the government in order to enhance the equality of opportunity (Red para el
42
Desarrollo de la Microfinanza en Chile website). In regards to the relation with the government, the
program FOSIS19 dispatches public funds to microfinance institutions that work with an integrated
approach (Martinez et al. 2009: 147).
In the table below, it is possible to notice the differentiation between microfinance institutions
in terms of legal nature, type of credit, clients, products and services offered. The main distinction
between them is highlighted in the section “clarification of terms”. Institutions such as NGOs, have an
integrated approach, and their clients belong to the most economic vulnerable groups, especially
women, who live in the villages. Their aim of these institutions is to generate positive impacts for the
social and economic well-being and for the community (Martinez et al. 2009: 79). Moreover, the
institutions with an integrated approach not only offer loans but also training and networks through a
model based on groups. On the other hand, the other institutions deal with clients with a consolidated
business and offer them different products and services with the aim to increase the financial inclusion
(Ibid.: 77). These institutions offer not only individual credit for income-generating activities but also
other services such as consumer credit and mortgage credit. while the others serve a more “bankable”
clientèle, i.e. formal and with guarantees micro businesses.
These aspects will be examined in the analytical section where the case study will be analyzed
according to the institutions that offer loans.
Furthermore, the microfinance world is well variegated and presents various differentiations
within it: below table 5 summarizes the institutions present nowadays and their financial models.
19 FOSIS: Fondo de Solidaridad e Inversión Social created oin 1990 with the aim to reduce poverty and inequality
(website: http://www.fosis.cl/index.php/quienes-somos)
43
Table 5: resume of the microfinance institutions gathered in the Red para el Desarrollo de la
Microfinanza en Chile.
INSTITUTION
BANEFE (BANCO
SANTANDER)
BANCO DESARROLLO
DE SCOTIABANK
BANCOESTADO
MICROEMPRESA
CCAF DE LOS ANDES
COOPEUCH
LOGO
LEGAL NATURE
COMMERCIAL BANK
COMMERCIAL BANK
STATE-OWNED
COMMERCIAL BANK
CAJA DE
COMPENSACION
COOPERATIVE
TYPE OF
CREDIT
INDIVIDUAL
INDIVIDUAL
INDIVIDUAL
INDIVIDUAL
INDIVIDUAL
AVERAGE
AMOUNT OF
CREDIT
PURPOSE OF CREDIT
> 1 MILLION
- INCOME-GENERATING
ACTIVITIES;
-INSURANCE RELATED TO
THE ENTERPRISE;
-CONSUMER CREDIT;
- HOUSING;
-OTHERS.
> 1 MILLION
- INCOME-GENERATING
ACTIVITIES;
-INSURANCE RELATED TO
THE ENTERPRISE;
-CONSUMER CREDIT;
- HOUSING;
-OTHERS.
> 1 MILLION
- INCOME-GENERATING
ACTIVITIES;
-INSURANCE RELATED TO
THE ENTERPRISE;
-CONSUMER CREDIT;
- HOUSING;
-OTHERS.
> 1 MILLION
- INCOME-GENERATING
ACTIVITIES;
-INSURANCE RELATED TO
THE ENTERPRISE;
-CONSUMER CREDIT;
- HOUSING;
-OTHERS.
> 1 MILLION
- INCOME-GENERATING
ACTIVITIES;
-INSURANCE RELATED TO
THE ENTERPRISE;
-CONSUMER CREDIT;
- HOUSING;
-OTHERS.
ORIENCOOP
COOPERATIVE
INDIVIDUAL
> 1 MILLION
- INCOME-GENERATING
ACTIVITIES;
-INSURANCE RELATED TO
THE ENTERPRISE;
-CONSUMER CREDIT;
- HOUSING;
- TRAINING;
-OTHERS.
EMPRENDE
MICROFINANZAS
JOINT-STOCK COMPANY
INDIVIDUAL
< 1 MILLION
-INCOME GENERATING
ACTIVITIES
1986
CRECER
NGO
VILLAGE BANK
< 1 MILLION
- INCOME GENRATING
ACTIVITIES;
-TRAINING
2003
FINAM
NGO
INDIVIDUAL AND
VILLAGE BANK
< 1 MILLION
- INCOME GENRATING
ACTIVITIES;
-TRAINING
1988
FONDO ESPERANZA
JOINT-STOCK COMPANY
VILLAGE BANK
< 1 MILLION
- INCOME GENRATING
ACTIVITIES;
-TRAINING;
- NETWORK
2002
BANIGUALDAD
NGO
VILLAGE BANK
< 1 MILLION
- INCOME GENRATING
ACTIVITIES;
-TRAINING
2001
Source: Red para el Desarrollo de la Microfinanza en Chile 2013.
44
5. CASE STUDY
Before starting the analysis, the presentation of the case study will be illustrated in order to
show the departure point of this social research. As mentioned in the methodology, 14 people were
interviewed about the impacts of microcredit in their lives in terms of income, family well-being,
empowerment and social capital. In the annexes section, a table summarizes the main information
about the clients that were interviewed in order to give a brief description of their social and economic
condition that are here presented in an aggregated way.
As a starting point, it is important to stress if in the case study the microfinance institutions are
actually serving the bottom of the pyramid, i.e. people that are vulnerable or in risk of vulnerability. In
this sense, an instrument based on surveys utilized by the government identifies the level of poverty of
people. This instrument is used to put in action social policies directed to them. “Ficha de Proteccion
Social” (FPS), consists in giving a score to the state of poverty of people considering the presence of
elderly, pregnant, low-educated and unemployed individuals in the household (Biblioteca del Congreso
Nacional de Chile website). The aspects taken into consideration are the socio-economic characteristics
of the family such as the income, the condition of the house and its inhabitants in terms of health,
education and employment (Ibid.). With respect to these indicators, people are organized into sections
according to the score in 6 quintiles. The first quintile gathers the most vulnerable people (score: from
2.072 to 8.500), in the second people that have score from 8.501 to 11.734, and in the last from 11.735
to 13.484 (Glosario of Ministerio de Desarrollo Social website). With regards to this classification,
people that were interviewed are distributed as in the graph.
45
Graph 5: Distribution in terms of FPS (vulnerability) of people interviewed
Source: Author's formulation
Through this graph, it is possible to notice that the people interviewed belong to different levels of
vulnerability and are representative of the heterogeneity in the popular economy. Within the first
quintile, 12 out of 14 people belong to the most vulnerable sector and are recipients of public social
benefits, e.g. scholarships for students and delivery of food in the schools (Ficha de Proteccion Social
website). The second and the third quintile correspond to higher levels of wealth.
Other interesting data regards the level of education and the health system of the interviewed
people that are shown in the annexes (table 1). The level of education shows a normal distribution
where the majority of them (13 out of 14) were educated to high school at most. This confirms the
analysis of the popular economy in the empirical data section. With respect to health, unfortunately the
information is not always available but almost all the people interviewed belong to the public system
FONASA and, specifically, the first quintile which gathers vulnerable people with medical assistance
for free.
46
About the interviewees' businesses, below there is a classification according to the forms of
organization and differentiated levels of development.
Table 6: Classification of businesses according to levels of development and forms of organization.
FORMS OF ORGANIZATION
DIFFERENTIATED LEVELS OF
DEVELOPMENT
COMMUNITARIAN
PEO
FAMILY
BUSINESSES
INFORMAL INDIVIDUAL
INITIATIVES
LIFE STRATEGIES
0
5
3
SUBSISTENCE STRATEGIES
0
0
0
SURVIVAL STRATEGIES
0
0
6
Source: Author's formulation
Within the interviewees’ businesses, the grocery stores and the pound shop, which are also legally
formal, are considered as life strategies and family businesses. Indeed, it is the main household activity,
which involves sporadically other members of the family. Productive – and service- businesses such as
seamstress, hairdresser and pastry chef are individual activities, mainly carried out in the house, and are
also life strategies. All the other businesses are mainly survival strategies practiced occasionally in the
market or in the streets of the poblaciones where they live, contributing to the household income. This
classification will be useful in the analytical section when I will analyzed income.
47
6. ANALYSIS
The analysis is divided into four sections which are income, family well being, empowerment
and social capital. Starting from the case study, I will analyze the impact of microcredit on these four
variables considering the differentiation between MFIs with a minimalist and a integrated approach
explained in the section “clarification of terms”. The theoretical approaches will be the backdrop of the
analysis and the perspectives of microcredit with the aim to answer the problem formulation.
6.1 INCOME
In the popular economy, people which are unemployed or are not satisfied of their jobs, are
pushed by necessity to find a creative and effective way to earn an income that could meet their needs.
In order to generate employment and to improve living conditions, one of the instruments is selfemployment20 initiatives in different sectors of economy. The aim of these initiatives is to maximize the
net income which is dependent on fixed assets such as machinery and equipment, working capital,
employment and entrepreneurial knowledge as represented in the scheme below (Martinez et al. 2009:
96-104):
MICROCREDIT
EMPLOYMENT
CAPITAL
ENTREPRENEURIAL
KNOWLEDGE
INCOME
20 In this paper, the term “self-employment” is utilized as synonym of micro-entrepreneur which
qualify the predominance of personal work on other factors of the enterprise.
48
As can be seen in the scheme, through investments in capital, employment and entrepreneurial
knowledge, microcredit impacts directly the income. In the case study, in order to identify the variation
of net income of microenterprises, I conducted a comparison between the income before receiving the
loan and the income recorded afterwards. With this method, based on quantitative data, it was possible
to notice an increase of net income for almost all businesses as showed in the annexes (table 2 and 3).
According to the interviewed, net income almost doubled for all microentreprises that participated in a
microcredit program. Nevertheless, in two cases, the income decreased because of endogenous and
exogenous variables. In the first case, the microentrepreneur managed a “casino” of slot machines. In
2004, she was not able to stand the competition of other micro businesses and the spread of new video
games such as Nintendo and PlayStation (Susana, personal communication, 23rd April 2014). After the
failure of her business, Susana started working as an employee until 2014. Since she had to take care of
her niece, she set up a grocery store in a rural and less dangerous area than before. In the second case,
the client's health problems entailed high and unexpected expenditures which caused the decrease of
the income. In spite of these two cases, the trend is that microenterpreneurs, which participated to a
microcredit program for more than one year, viewed an increase of their net income. When I conducted
the interviews, 9 out of 14 people gain more than the minimum salary21 but when the same individuals
asked for the first loan there were just 4 overcome it. Nevertheless, the maximization of the income is
not the main aim for some interviewees. Indeed, some microenterprises are life strategy oriented, which
means that the family well-being is based on the economic activities. These strategies are pursued
through the differentiation of goods and services and number of hours dedicated to the job. On the
other hand, as Mauricio Rojas says
“People look for a job that lets them live with dignity. Increasing income and growth implies that people have
to incorporate management abilities, organize human resources, financial administration. These requirements
are difficult to learn (…). Growth is a big stress and sometimes not all people have this aspiration (Rojas M.,
personal communication, 17th April, 2014).
As he says, not all businesses have this aim of growth. Indeed some activities have survival strategies,
e.g. street vendors. This means that people manage their business for a limited number of hours during
the week. In this case, the aim is not to grow and maximize the income but to gain an extra income that
could satisfy their needs in a better way. As in the case of Susana, the maximization of income was not
21 The minimum salary corresponds to 210,000 Chilean pesos.
49
the only aim. Indeed the necessity of taking care of her niece pushed her to occupy herself in a less
binding activity in terms of time and workplace (Susana, personal communication, 23rd April 2014).
The increase of income is due to organizational and/or structural changes of the economic unit
of the microentrepreneur. Indeed, microcredit directly impacts some variables, i.e. investments in
capital, in the employment of new workers and the improvement of entrepreneurial knowledge. The
distinction of methodology applied by the various MFIs, minimalist or integrated, entails a
differentiation in terms of impact on these factors and, consequently, on the income, as will be analyzed
in the next sections.
6.1.1.
THE MINIMALIST APPROACH ON INCOME
Through the individual credit, MFIs such as banks and cooperatives but also FINAM and
Microfinanza Emprende have a minimalist approach. The conception behind MFIs with minimalist
approach is that microcredit is a development strategy per sé where “the missing piece” for the business
growth is the “lack of affordable, accessible, short-term credit” (Ledgerwood 1998: 66). MFIs offer
financial intermediation as a remedy for poverty to some segments of the population, while other
services such as health, education and enterprise development services are provided by other
institutions (Ibid.). According to this, in the case study, people that receive an individual credit from
banks have access to associated services as credit cards for consumer credit, bank accounts, savings
accounts and so on. In other words, MFIs with minimalist approach offer to their clients a complex and
varied selection of products related to the financial intermediation to clients that manage business
already consolidated. The profundity of services permits vulnerable people not only to invest money in
her/his economic activity, but also to save money in a bank account, have a mortgage loan and
consumer spending. I will face these instruments in the section dedicated to the family well-being, but
for now it is interesting to point out the idea that a microcredit opens various doors for the
improvement of poor people's living conditions.
In the case study, beneficiaries of this kind of credit preferably invest on fixed assets, working
capital or renovation of the store. According to the interviews, microentrepreneurs who manage selfemployment initiatives already consolidated, such as hairdresser, seamstress and shopkeeper, have
invested in new equipment and machinery. Nevertheless, the certainty that borrowers channel the loans
into consumer spending rather than into income generating activities is quite widespread. According to
Bateman, people use loans to satisfy basic needs i.e. “to buy food (…) [and then] funerals, school fees
50
and medical expenses become the most pressing needs” (Bateman 2010: 11). In the case study, Maria
Eugenia requested for a loan in order to invest in assets. Nevertheless, she utilized it for unexpected
medical expenditures (Maria Eugenia, personal communication, 30th of April 2014). Conversely, Paula
requested a consumer credit to buy equipment for her business (Paula, 28th of April 2014). Hence, the
widespread idea that vulnerable people do not use loans for income generating activities is debatable,
and it is a responsibility of the field work executive to evaluate. Moreover, the case of Paula shows the
information asymmetry due to the lack of entrepreneurial knowledge of the borrower and, moreover, to
the lack of training of the lender.
Besides investments in fixed assets and working capital, MFIs with a minimalist approach did
not impact the number of workers in the microenterprise, especially outside the family. Indeed,
microentrepreneurs are mainly self-employed or ask for help to relatives (Martinez et al. 2009: 108).
Maria Eugenia, client of several institutions, owns a grocery store where her husband and sons help her
some days but she does not want to hire people outside of the family (Maria Eugenia, personal
communication, 30th of April 2014). Differently, Paula would like to hire someone that could help her
especially during winter when the requests for school uniforms are many and she cannot satisfy all the
demand (Paula, personal communication, 28th April 2014).
Finally, with respect to the entrepreneurial knowledge, MFIs with a minimalist approach do not
offer courses about business training or other initiatives because they prefer to maintain a clear focus
where they have comparative advantages Ledgerwood 1998: 66). These services are offered by other
institutions private and public. FOSIS controlled by the government offers courses of business training
to support the vulnerable families and improve housing. On the other hand, organizations such as
“Trabajo por un Hermano” (TPH) offer training and assistance to vulnerable people to improve
people's employability and their microenterprises. As Mauricio Rojas, director of TPH says,
There is a responsibility of the society to help vulnerable people. It is like in a family when there is a son with a
disability: we give him more attention and more resources. I think that people of vulnerable sectors have had
less opportunities in respect to the rest of the society. Thus the society has to worry more for this segment to
help them develop (…). [Besides] it is not just to give credit because there are several bigger problemst.
Microentrepreneurs have an innovative profile and experience, and credit is always useful especially with
training (Rojas, personal communication, 17th April, 2014).
With this statement, he declares his indifference towards services different from the credit. Indeed,
other public or private institutions should take charge of this responsibility.
To conclude, MFIs with a minimalist approach serves vulnerable people through a differentiated
selection of financial instruments. As can be seen from the case study, the impact of microcredit on
51
income is not clear and noticed in all the cases: as a matter of fact, just in two cases there is an increase
depending on investments, while in the other two cases, the result is controversial. In fact, in one it is
contradicted by the failure of the microenterprise. Deficiency in entrepreneurial knowledge and
information exchange have influenced negatively the economic trend of the initiatives. On the other
hand, in the case of Maria Eugenia, the negative trend is mainly due to the lack of social services rather
than the nature of credit.
6.1.2.
INTEGRATED APPROACH ON INCOME
In this part the focus will be on MFIs with an integrated approach, that is those which offer
group lending. The focus of MFIs with integrated approach is not only on financial intermediation as
seen before, but on the development of cooperative systems characterized by solidarity. As the website
of Grameen bank affirms,
The Group Model's basic philosophy lies in the fact that shortcomings and weaknesses at the individual level
are overcome by the collective responsibility and security afforded by the formation of a group of such
individuals. The collective coming together of individual members is used for a number of purposes: educating
and awareness building, collective bargaining power, peer pressure etc. (Grameen Bank website).
The concept of “solidarity” refers to peer pressure which uses moral and other linkages between
borrowers and project participants to ensure participation and repayment in microcredit programs
(Grameen Bank website). This peer pressure is used as a substitute to traditional collateral.
Nevertheless, the concept of solidarity goes beyond that including broader options of behaviors, i.e. the
overcoming of individuality or the creation of cooperatives. In Chile, various organizations employ this
methodology not just for the peer pressure benefits, but also for the positive effects that will be
illustrated hereafter.
With respect to the case study, microcredit of MFIs with integrated approach impacts the
income through the investments on working capital such as fabric, clothing and other products.
Differently from individual credit, this type of credit does not permit the investment in machinery and
equipment because of its modest amount. Investments in fixed assets would be possible through
accumulating loans over the years as in the case of Rosa: she started her business selling clothes, and
then used the loan to build a pound shop in the house (Rosa, focus group, 5th of May 2014). The loan is
utilized for the immediate purchase of goods to re-sell them or to transform them before the sell.
Moreover, in the case study, there are no impacts of microcredit on employment, even if some
microentrepreneurs take advantage of the help of other members of the family.
52
Differently from the minimalist approach, in the integrated approach there is an important
change in terms of entrepreneurial knowledge. Interviewed clients participate in weekly or monthly
meetings where MFIs staff teach them how to calculate costs, identify prices and marketing strategies,
through which people can raise the net income. Moreover, the MFI puts into contact its borrowers with
other institutions that offer courses and business trainings for people interested in improving their
knowledge. Thus, thanks to trainings, clients perceive an improvement of the control and organization
of their businesses with positive consequences on their net income. As Hugo asserts: “now we know
what we are doing and this influences the run of our business. We can climb up and aspire to something
more” (Hugo, focus group, 5th of May 2014). The exchange of information and knowledge is not only
vertical but also horizontal and derives from group participation and its positive dynamics. As Luisa
asserts, “the credit made us more responsible” (Luisa, focus group, 23rd of April 2014). In these
informal groups, it is important to highlight the transfer of knowledge not only from the institution to
people but also among people. Indeed, while the formal and codified knowledge can be transferred
from institutions, tacit knowledge, as the result of experience and observation, “is acquired largely
through association with other people, and requires joint or shared activities to be imparted from one to
another” (Business Dictionary website). Thus, the value of these gatherings is based on the sharing of
ideas, ways of working, experiences and opportunities. The result is the emergence of some
experiences based on cooperation, and defined by Razeto as Popular Economy Organizations (PEOs).
Indeed, as Isabel Infante, director of FINAM, asserts:
In the North and South of Chile, there are enterprises which cooperate in order to buy inputs and equipment,
and sell their products together. They are then able to better negotiate the price of their products and compete in
a better way. I think that cooperation is good for all levels (…). The general shortcoming is that people are not
able to get out of their barrio22 and sell their products. They have to be convinced of the benefits of working
together (Infante I., personal communication, 28th of April 2014).
In the same way, informal cooperatives should exist in the popular economy but this is not so evident.
For instance, there are people that cooperate to buy clothes for low prices and sell them in different
areas in order to avoid competition between them. These experiences show the solidarity between
microentrepreneurs and would be an interesting approach to the topic in a deeper way. Nevertheless,
these gatherings are not always well appreciated. As Susana explains,
I do not think I will continue with Fondo Esperanza because I do not have time to go to these gatherings. It is a
nuisance and I do not want to waste time. I cannot let my son be left alone and I do not want to close the store”
(Susana, personal communication, 23rd April 2014).
22 Quarter or neighbourhood
53
In the Susana's evaluation, the benefits of cooperation are overcome by its costs, or by the
predominance of other necessities. This demonstrates that many improvements should be generated in
order to promote conscious and active participation in the group.
In conclusion, with respect to the integrated approach, there is a general improvement of
income which essentially depends on investments in working capital and entrepreneurial knowledge. In
regards to working capital, the raw materials can be amortized in the short term and in a less risky way
compared to the fixed assets. On the other hand, the entrepreneurial knowledge permits a better
symmetry of knowledge, both vertically and horizontally.
To conclude the section about income, there is generally no doubt that both approaches
demonstrate positive impacts of microcredit on poor people's living conditions in terms of income.
Nevertheless, there is a differentiation in the results of the two approaches. In the individual credit, the
investments are more risky and, sometimes, clients are subjected to information asymmetry. In the
group lending, the group is an instrument which creates responsibilities, namely solidarity. In the case
that one borrower cannot pay his/her payment, the group substitutes the debtor minimizing the risk of
default. The income gained through the micro enterprise is employed as family income to satisfy basic
and other needs of the household affecting the family well-being.
6.2 FAMILY WELL-BEING
In this section, the economic and social impact of microcredit on family well-being in terms of
savings, education, health, consumption of food and housing will be analyzed. As mentioned in the
section dedicated to the clarifications of terms, family well-being is a satisfactory state of all the
individuals of the family. Due to the difficulty of evaluating the impact of microcredit on changes in
family well-being, this part is entirely based on the s of interviewees assessments. During the interview,
people have discussed their evaluation on how microcredit has changed their consumptions, savings,
health and education. In scheme below it is shown a scheme on the impact of microcredit on these
aspects that will be discussed in light of the differentiation of MFIs approaches.
54
MICROCREDIT
CONSUMPTION
AND SAVINGS
EDUCATION
HEALTH
HOUSING
FAMILY
WELL-BEING
6.2.1.
CONSUMPTIONS IN FOOD AND HOUSING
Productive microcredit can give the opportunity to make borrowers able to make decisions
about consumption that would be unfeasible without it. In other words, microcredit can promote an
improvement of consumption that leads to better living conditions (Niccoli & Presbiterio 2010: 78). As
mentioned in the section related to the income, through micro loans, people can increase their income
and, consequently, their household consumption. The money that is not spent is saved to face future
needs.The link between more consumption and better living conditions is discussed by Bateman who
highlights that
we know that consumption of some products and services ultimately destroys human welfare: class-A drugs, tobacco,
strong alcohol, images of violence and certain categories of junk food are obvious examples (Bateman 2010: 13)
Indeed, consumption does not always lead to improvement of living conditions, nevertheless, as
Mauricio Rojas affirms,
What we call consumption can be considered as development of the family. What is development? The
improvement of living conditions in terms of relations, spirituality and economy. Consumerism is negative but
if a family has the possibility to buy a water heater or a fridge, this is pure development in my opinion because
it improves living conditions (Roja M., personal communication, 17th April, 2014).
As he affirms, the possibility to buy a heater or a fridge improves the family well-being because all the
55
members can take advantage of these expenditures. According to the case study, the interviewees
observe an improvement of their living conditions in terms of consumption of food, housing and
transport. Indeed, Luisa asserts, “I could buy more things, first of all food and then things for the
house” (Luisa, focus group, 23rd of April 2014). Similarly, Marcela affirms
My partner is the family provider because he receives a monthly salary, but my income helped very much. Not
only did I invest it in inputs for my economic activity, but also I contributed to expenditures in food, improving
the nutrition of the family (Marcela, 23th of April 2014).
In this way, changes of income influence directly the household consumption in terms of food, housing
and transport as can be seen from the table.
Table 6: resume of family well-being recorded in the case study
ELIZABETH DEL
SUSANA DE LAS
PAULA
MARCELA SOLEDAD SUSANA
GLORIA DEL MAKARENA DE
MARIA EUGENIA
HUGO MANUEL
VERONICA
LUISA DEL CARMEN
LIDIA DEL PILAR
ROSA ESTER
CARMEN
ROSA ELVIRA
MERCEDES ROBLES ALEJANDRA
CALFUQUEO
JACQUELINE CARMEN VALERIA LAS MERCEDES
DE LA HOZ
CAYULEO
PATRICIA SOTO
HENRIQUEZ YAÑEZ
DONOSO NUÑEZ
SUAZO VASQUEZ INOSTROZA
ZAPATA SILVA
JORQUERA MORENO AROS
CURILLAN TUNINETTI ULLOA BURGOS
RAMIREZ
MORENO
LONCOPAN
RUIZ
RIVEROS
CLIENT
FAMILY WELL-BEING
HOUSEHOLD
CONSUMPTION
AND SAVINGS
/
IMPROVEMENTS IMPROVEMENTS
IMPROVEMENTS
WORSENING DUE TO BECAUSE OF A
THE FAILURE OF HER BETTER DIET,
BUSINESS TRANSPORT AND
SAVINGS
/
IMPROVEMENTS
IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS
IMPROVEMENTS
IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS
IMPROVEMENTS
BECAUSE OF A
BECAUSE OF A BECAUSE OF A BECAUSE OF A
BECAUSE OF A
BETTER DIET AND
BETTER DIET AND BETTER DIET AND BETTER DIET AND
BETTER DIET AND
EXPENDITURES IN
SAVINGS THROUGH SAVINGS THROUGH SAVINGS
SAVINGS
HOUSING
“POLLA”
“POLLA” THROUGH “POLLA”
IMPROVEMENTS IMPROVEMENTS
IMPROVEMENTS
IMPROVEMENTS
BECAUSE OF A
WORSENING
BETTER DIET,
TRANSPORT
IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS
IMPROVEMENTS BECAUSE OF A BETTER DIET
IMPROVEMENT
HOUSING
EDUCATION
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
HEALTH
Source: Author's formulation
In table 6 it is possible to see that 12 out of 14 interviewed register an improvement in household
consumption. On the other hand, two cases have perceived a worsening since they received their first
56
loan. As mentioned in the section dedicated to the income, Susana affirms,
I had a really tough period due to the lack of money, and my husband did not give me money for the children.
One of them was finishing high school, but the other two were still attending school. Since the situation was
worsening and we needed money to buy food and use transport, I started working as an employee (Susana,
personal communication, 23rd of April 2014).
According to the interview, the decision to work as an employee is due to the worsening of the living
conditions of the entire family. In the other case, Maria Eugenia saw a worsening in her living
conditions because her income started to decrease and her household consumption suffered lightly.
Despite the decrease of the income, she does not suffer any decrease in consumption because this is
replenished by the income of other family members. This situation can be distinguished from that of
Susana. Indeed, she could not rely on the strong ties within the family and, after the failure of the
activity, she was constrained to look for employment with guaranteed salary at the expense of
flexibility of her previous situation.
To conclude, microcredit has an indirect impact on household consumption in terms of
expenditures in food, transport and housing. The majority of the cases present an improvement of
living conditions due to the participation in a microcredit program. On the other hand, one case records
a worsening that is not due to bad decisions of expenditures as Bateman says. Rather the decrease of
the income provoked a worsening of household consumption because she had to limit her decisions on
consumption expenditures.
6.2.2.
HEALTH AND EDUCATION
Various studies on the impact of microcredit showed positive effects on well-being indicators
such as education and health. Nevertheless, nowadays the link is debatable because there are other
concurrent reasons that influence the local development, for instance private initiatives managed by
private and public institutions (Niccoli & Presbiterio 2010: 78). Indeed, the reasons for the
improvement of education and health could be not uniquely financial, but also due to the development
of more inclusive public systems. Based on the interviewees' assessments, there is no a clear impact of
microcredit on education and health of the family. With regards to education, the interviewed do not
feel any improvement, however they declare that, through their economic activities, they would like to
give their children a better future. Thus, benefits in terms of education and health need time to
materialize (Ibid.: 73). As Hugo asserts, “all the people that are here [in the gathering] are here for their
families (…). We have a lot of trust in the future”(Hugo, focus group, 5th of May 2014). It is possible
57
to assume that microentrepreneurs are interested in the improvement of living conditions of their family
members’ future.
Nevertheless, “microcredit programs do not change the structural conditions of globalization—
(...) that is privatization of essential public services, or cutbacks in health and education spending”
(Feiner & Barker 2006). In other words, the responsibility for health and education are placed onto the
backs of poor people who have to struggle to get out of poverty and improve their family well-being
(Ibid.). Microcredit could have an impact on education and health in the long run, albeit a struggle, but
as well, other services are necessary to satisfy these needs. As seen in the case study, the interviewees
did not achieve high levels of education. In order to change the structures of poverty and inequality,
interventions in terms of education and health should be discussed to meet new solutions. Public health
programs such as AUGE 80, permit vulnerable people to benefit from better medical assistance. These
interventions affect the structural conditions of poverty and inequality (World Health Organization
2008).
Alternatively, Pablo Coloma asserts,
I can be bothered that things are as they are. Nevertheless, it is better to go out and reduce poverty (…). Poverty
is structural, deriving from an unfair structure of society and an unequal division of power, from egoism and
injustice. Nevertheless, if we accept that the world is unequal, we are not going to fight (Coloma, personal
communication, 30th of April 2014).
To conclude, microcredit alone cannot substitute public systems in the resolution of structural
problems related to health and education. The state should retake its role in these sectors and
collaborate with microfinance institutions in order to reach better results through adequate programs
dedicated to poor people.
6.2.3.
SAVINGS
In this last part of the family well-being section, I introduce the topic of savings as a mechanism
to face future needs, thus to improve living conditions. Therefore, even if the widespread opinion is that
poor people consume the entire income, various ways of saving are spread among them (Niccoli &
Presbiterio 2010: 73). “If it does not happen, often it is because individuals do not have feasible tools
among the informal channels to employ their savings” (Ibid., own translation: 74). With respect to
savings, it is important to highlight the differentiation between the approaches utilized by MFIs. Indeed,
if until now the impact on family well-being does not depend on this differentiation, for savings it is
interesting to notice the different methods people employ to face future needs. Starting from the
58
interviews, Paula declares,
I save money to buy my working capital, but also for my family needs. Indeed, in some periods, we use the
money that I saved to use in our consumptions. After, I always replace it (Paula, personal communication, th of
April 2014).
In the same way, Marcela says,
MFIs lend you a quantity of money and, in this way, give me trust. Thus, I have to save money and cannot
waste it because I have to give back this money. I do not waste what I do not actually have (Marcela, focus
group, 23rd of April 2014).
Both of them give remarkable importance to savings as a way to face future consumption even if none
of them has formal channels to save their money. Clients served by banks and cooperatives have access
to instruments that facilitate the process of saving. For instance, Maria Eugenia and Lidia have their
saving accounts in case of necessity. For instance, when Maria Eugenia got sick and Lidia had to buy a
new car (Maria Eugenia and Lidia, personal communication, 30th of April 2014). Institutions with a
minimalist approach offer to their clients the possibility to rely upon saving systems. Nevertheless, the
opportunity that MFIs with an integrated approach give their clients, is the ability to create other forms
of savings, named Rotating Savings And Credit Associations (ROSCA). Gloria, president of the
Banigualdad group, explains this form of saving,
We started the so-called polla23 with Banigualdad. Basically, every Wednesday we meet and bring 10,000
Chilean pesos to add to the fund. Every week it is raffled to one person who gains the entire fund. We do this
until all members of the group have received it (Gloria, focus group, 23rd of April 2014).
This form of saving is the result of ncooperation and solidarity among borrowers in the group, in spite
of the risks that a person could pay his/her quota. This “Popular Economy Organization”, as Razeto
(2006) calls it, is used to have savings available in order to face current and future basic needs.
Moreover, as Gloria explains, in the weekly gatherings, Banigualdad makes borrowers collect money in
the case that one person is unable to pay his/her payment. In this way, “money that was not utilized is
newly distributed at the end of the cycle so we can get back our savings” (Ibid.) To summarize, there
are different methods that vulnerable people use to save money to face future needs and, in this way,
improve living conditions of the family. From one side, there are formal channels created by banks and
cooperatives. From the other side there are instruments based on solidarity which satisfy people's needs
thanks to cooperation.
23 Polla: Chilean name for ROSCA
59
In conclusion of the three sections, the interviewed recorded an improvement in consumption
such as expenditures for food and housing, but not in education and health. With respect to savings,
even if there were not many interventions about the topic, MFIs with an integrated approach encourage
various forms of informal savings.
6.3 EMPOWERMENT
In this section, the impact of microcredit on poor people's living conditions in terms of
empowerment will be illustrated. Generally speaking, studies about microcredit conclude that there is a
positive relationship between microcredit and empowerment because
credit program participation leads to women taking a greater role in household decision-making, having greater
access to financial and economic resources, having greater social networks, having greater bargaining power
compared with their husbands, and having greater freedom of mobility (Pitt et al. 2003: 1).
Similarly, Pablo Coloma declares that behind microcredit there is a high level of people's
empowerment. Certainly, “when you give a credit, you give dignity to a person that always saw closed
doors, that nobody trusts” (Coloma, personal communication, 30th of April 2014). In this social
research, empowerment is defined in terms of self-esteem, autonomy in taking decisions, view of the
future, leadership and participation. Based on the perception of clients, it is possible to notice that the
majority of the interviewees have perceived a positive impact of microcredit on their living conditions.
Nevertheless, it is difficult to declare that these positive changes are due to microcredit or to other
concurrent reasons.
With respect to self-esteem, all the cases show a general improvement apart from two cases.
What it is interesting for the aim of this social research is the reason why people feel an improvement
of their self-esteem. As Paula says,
When I was working as an employee, I bought some equipment, and, when my son was born, I started to work
as an independent worker. With the money of FOSIS I could buy other machinery and the credit of FINAM
gave me the possibility to buy fabric and other working capital. I started to have self-esteem when I had my
own sewing workshop (Paula, 28th of April 2014).
On the other hand, Gloria, President of her group, affirms,
I improve my self-esteem thanks to my group. Indeed, I was never really talkative but in the group I started to be more
self-confident (Gloria, focus group, 23rd of April 2014).
Paula, which has received credit from a MFI with a minimalist approach, perceives an improvement of
her self-esteem because she could realize her dream. While Gloria, who participates to a microcredit
60
program with Banigualdad, also feels more self-esteem, it is not only due to the fact that she realized
her dream to cook. Indeed, she acknowledges the support of her group-mates, i.e. her friends and
neighbors. These two statements reveal the importance of relations as a way to support the personal
development of people and transform them from passive actors to active agents. Among the interviews,
Makarena declares that she never had self-esteem and now it is even worse because of a difficult
situation in her family. Despite that, her group mates support her and declare that “she has a strong
character and self-esteem especially because she works directly with people in the market” (Makarena
& Luisa, focus group, 23rd of April 2014). The other case is Susana, who during the years worked in
her venue with slot machines, her self-esteem lowered because of her worsening of economic situation
and her relationship with her husband. The feeling of loneliness is here expressed in this sentence: “we
were able to get out of this situation thanks my sons and I who had struggled” (Susana, personal
communication, 23rd of April 2014). Different from the cases seen above, Susana could not rely on the
help of her family or community. Here it is highlighted that poverty is an individual problem and the
solution as well.
With respect to the autonomy of making decisions and envisioning the future, there is a general
improvement among the interviews. As Hugo says, “if we trust in the future, we can have a
consolidated business without running away from the police because of our informality” (Hugo, focus
group, 5th of May 2014). During the focus group with Fondo Esperanza, everybody seemed to agree
with what Veronica said: “I feel much better than before thanks to the participation in this group. We
have to always look beyond the present” (Veronica, focus group, 5th of May 2014). The positive
repercussions in terms of autonomy, self-esteem and vision of the future are not only at a personal level
but also at a family and community level. Essentially, women feel able to take control of her life for the
first time. This determines a greater bargaining power, a different distribution of the roles within the
family, a greater appreciation of herself and from the community in which she develops her personality.
Finally, empowerment in terms of participation24 and leadership25 shows a differentiation of
results depending on the institutions that offer the loan. From the one side, people who were served by
24 With “participation” I mean the availability to joint consultation in decision making, goal setting, teamwork and other
forms to increase people's commitment to collective objectives (Business Dictionary website
http://www.businessdictionary.com/definition/participation.html)
25 With “leadership” I mean the activity or ability of leading a group of people (Business Dictionary website
http://www.businessdictionary.com/definition/leadership.html)
61
institutions with a minimalist approach did not see any improvement or effect. On the other side,
people that received the loan from a MFI with an integrated approach stress the importance of
leadership and participation. Indeed, the Banigualdad group tells that there was a significant change
with respect to the formation of the group. It is possible to notice the change through the level of
intervention of members during the gatherings: currently, almost everybody is an active participant.
Marcela (focus group, 23rd of April 2014) thinks that people in the group became too headstrong and
this provoked a rift within the group creating problems in terms of teamwork. In spite of the rift, they
could cooperate and organize some economic activities together, as Gloria (Ibid.) explains: “we are
here all together and we like planning new ideas”.
Graph 8: resume of the results of the interviews about the impact of microcredit on
empowerment.
PARTICIPATION
AND LEADERSHIP
CLIENTS OF MFIs WITH A
MINIMALIST APPROACH
TOTAL CLIENTS OF MFIs
WITH A MINIMALIST
APPROACH
CLIENT OF MFIs WITH AN
INTEGRATED APPROACH
TOTAL CLIENTS OF MFIs
WITH AN INTEGRATED
APPROACH
VIEW OF THE FUTURE
SELF-ESTEEM
0 2 4 6 8 10 12 14 16 18 20
number of clients
Source: Author's formulation
As can be seen in the graph, the remarkable difference between institutions regards “participation and
leadership”. Indeed, these assume that there are groups where people can participate more actively and
demonstrate their leadership attitudes. This is necessary to develop self-esteem, self-confidence, and
62
vision of the future. As Luisa says,
The participation in the group gave us the possibility to meet more people and to develop our personality
further, in order to have bigger wishes. As a matter of fact, at the beginning we were not so self confident
(Ibid.).
Even if interviewees feel an improvement of empowerment, some scholars sustain the contrary.
Bateman thinks that setting up businesses is not always what women want:
neoliberal social policy models are very clearly contingent upon the expansion of self-employment and
microenterprises in order to facilitate the “flexibilization” and disempowerment of the labour force (…) Many
women have been deliberately shifted into a far weaker and less remunerative self-employment position than
hitherto- that is, they have been disempowered (Bateman 2010: 15).
As Bateman declares, through microcredit, women have been disempowered because of the shift from
jobs outside the house with better salaries and protections towards more risky and insecure selfemployment. This seemed to be confirmed by Paula's statements who declares that her prices are lower
than those in the market and she feels overloaded during the summer (Paula, personal communication,
28th of April 2014). She also adds that she would like to have her own place to work outside the house
but, apart of the fact it is too expensive, she has to stay with her son (Ibid.). From these interviews it is
clear that various microentrepreneurs, especially women, decide to work in the house in order to take
care of their children and elderly people in the family. Nevertheless, Bateman's statement is
controversial because often the choice is not between a salaried or self-employment through
microcredit. Rather it is a matter of a necessity of facing poverty and to improve living conditions
thanks to the opportunity offered by microcredit in absence of an alternative. Moreover, with regards to
the reality of Chile, there is a widespread opinion among people that work in the microfinance field .
They think that micro-entrepreneurial activity is actually the best option for these people (Coloma,
Vera, Rojas). Indeed, as Coloma explains,
work as employees would be the best option if it were a different more developed Chile with a higher level of
education, a richer labor market and more flexibility. Nevertheless, in the context of Chile nowadays,
microentrepreneurial activity is the best option considering its population, its level of poverty and vulnerability
and people's abilities. I do not like when people speak of microentrepreneurial activity as underemployment, or
insecurity or as the worst job because the real job is the one with a contract. It is just a partial reality (…)
Indeed, in a independent job, the levels of self-realization are higher than the salaried job because people can do
what they want, what they like and in the way they prefer (Pablo Coloma, 30th of April 2014).
This thought, shared among the MFIs community, highlights that formal jobs are not always the best
options for vulnerable people in Chile. Indeed, the reason is that “hygiene factors” such as salary,
leisure time and workplace of salaried work do not always satisfy the worker. Additionally, motivators,
63
e.g. the benefits, self-realization, a good environment, relationships with the boss and workmates,
personal development and of the family are better in independent jobs in some cases (Vera, personal
communication, 6th of May 2014). According to the dual-factor theory26, people work independently
because it is the most satisfying choice among the alternatives that people have. Indeed, in some cases,
people in the popular economy could earn more money above the minimum salary. However they
prefer to have a job where they can schedule their own hours and balance work and life at home.
Moreover, this option allows more self-realization and personal development (Ibid.).
To conclude, according to the interviews, there is a quasi-general improvement of living
conditions in terms of empowerment with different results depending on the MFIs approach. Even if
some scholars (Bateman, Chang) believe that microcredit promotes disempowerment, this is not the
subjective perception of the interviewees, even for those who can be identified in the situation
described by Bateman.
6.4 SOCIAL CAPITAL
In this section, the impact of microcredit on living conditions in terms of social capital will be
analyzed according to the differentiation between MFIs approaches. Various scholars (Putnam,
Coleman, Bourdieu) have tried to define the concept of social capital. For the purpose of this social
research, I will use the conceptualization of Alessandro Pizzorno (1999: 374, own translation), Italian
sociologist, which defines social capital as “formed by the social relations of an individual considered
as a set of resources which he can utilize, together with other resources, in order to pursue his aims in a
better way”. As he adds, not all the relations can be considered as social capital. Hence, he narrows
down the definition of social capital to those relations where there is recognition of identity and forms
of solidarity and reciprocity (Ibid.). According to him, there are two forms of social capital: one based
on solidarity and the other on reciprocity. The first one consists of relations based on strong ties27
within a cohesive group characterized by the homogeneity of members in terms of culture, origin and
interests. On the other hand, social capital based on reciprocity is grounded on weak ties between
heterogeneous individuals who aim to pursue a common interest (Ibid.: 381-382).
These two different forms of social capital described by Pizzorno can be utilized to show the
concrete relations which exist in the context of the popular economy in Chile. As Victor Vera affirms,
26 This theory was developed by the American psychologist Frederick Herzberg in 1959 under the name of dual-factor
theory or motivator-hygiene theory. Here it is explained during an interview.
27 Strong and Weak ties are part of the theory of Granovetter (1983)
64
Poor people live thanks to these relations [the ones based on reciprocity and solidarity] because they could not
rely just on the other two [exchange and subsidiary relation] (…) Microfinance works in this way: there is an
offerer, that is the MFIs, and a demander, microentrepreneurs. The first one offers financial intermediation with
an interest which would not harm the income of the business. Thus, we can say that there is a virtuous relation:
the aim of the institution is not to be millionaire or lucrative, but to be fair in order that both subjects can grow.
This relation can be considered as market exchange but characterized by solidarity because the institution has a
social aim (Vera, personal communication, 6th of May 2014, own translation).
The aim of this relation is to maintain an enduring relation where the recognition of reciprocal identity
and trust are the cornerstone. Trust between the MFI and the client is established with the field visit of
an employee, which evaluates people businesses, and is strengthened with the return of the payment. In
this way, microcredit is an instrument which permits and gives trust to people which improves their
level of self-esteem and self-confidence. The form of social capital based on reciprocity is common to
all the relations between MFIs and their clients. Nevertheless, only microcredit offered by MFIs with
an integrated approach promotes forms of social capital which go beyond the simple reciprocity of
relations between the MFI and the beneficiary. Indeed, the group lending creates stronger inter-personal
ties within the group which strengthens over time. During the interviews with the two village banks, it
is found the function of the group as space of interchange. The gatherings become a space “outside the
house” where people exchange information and experiences, and strengthen their ties. Juan Cristobal,
general manager of Fondo Esperanza, explains,
The solidarity methodology permits a greater development of social capital, that is to create ties with neighbors
and people of the same sector or industry. The groups are spaces of information exchange and promote
development of knowledge and empowerment (Romero, personal communication, 22nd of April 2014, own
translation).
Similarly, from the clients' interviews, it emerges that the participation to microcredit programs
promotes social capital. For instance, Gloria noticed an improvement not only of her business but also
of her personality thanks to participation in gatherings and group activities (Gloria, focus group, 23rd of
April 2014, own translation).
According to Pizzorno's theory, the social capital which the members generate within groups, is
based mainly on solidarity. Indeed, groups presented here are characterized by a high homogeneity in
terms of origin, job, level of poverty, education and culture. The solidarity which characterized the
group is so strong that the group intervenes to sustain their fellow members in case of necessity when
the person is not able to return his/her payment. This method reinforces the social ties, improves trust
and permits to face unexpected economic needs. Therefore, “when the state is unable to provide basic
services, social capital based on family relations and kinship provides a cushion against hard times”
65
(Panth 2010). Nevertheless, the social capital based on solidarity is not sufficient for the personal and
social development of people. To reach this aim, it is necessary to create social networks between
socially heterogeneous groups. The aim of this form of social capital is “to share and exchange
information, ideas and innovation, and builds consensus among the groups representing diverse
interests” (Ibid.). Microfinance programs, although fundamental to promote the cohesiveness within a
group, should also create other forms of ties in a way that people could have experiences outside of
their neighborhood or family. As Isabel Infante says,
I like the group approach because people support each other, exchange advice and it could lead to a faster
development compared with the individual credit (…). Nevertheless, what is necessary is that people could go
out of their neighborhood (Infante, personal communication, 28th of April 2014, own translation).
In conclusion, the improvement of living conditions in terms of social capital can be identified only in
clients of MFIs with an integrated approach. In line with the philosophy underlying to the Grameen
Bank, cooperation and solidarity create a virtuous circle within the village banks.
66
7. CONCLUSIONS
Microcredit is a financial instrument given to poor people which are excluded from the
traditional banking system in order to be invested in income-generating activities. This instrument can
generate economic development in terms of income and consumption. Nevertheless, there are services
associate with credit, such as business training and the promotion of social networks, which generate
human and social development. From one side, there is a visible aspect related to microcredit which is
the economic process of capital and work transformation into outputs which generate income. On the
other hand, there are invisible aspects underlying this process of transformation. These factors consist
of “processes of values, relations and symbols which influence fundamentally motivation and
productivity on the most important factor, that is the human labor, with decisive effects on the final
result” (Becchetti 2008: 64).
The results of this case study conducted in Chile tend to confirm the validity of microcredit as
instrument which generates positive economic and social impacts on poor people's living conditions.
Indeed, it is possible to conclude that microcredit has a quasi-general positive impact on income and
family well-being in terms of consumption and savings. All microfinance institutions, either with a
minimalist or an integrated approach, generate positive economic impacts.
Nevertheless, only
microfinance institutions with an integrated approach have better results about empowerment and
social capital. Indeed, these institutions offer not only credit but also other services such as business
training and the promotion of social network. Hence, microfinance institutions with a minimalist
approach work in a more neoliberal logic because is focus only on economic needs. On the other hand,
microfinance institutions with an integrated approach work in a logic closer to the solidarity economy
approach. Indeed, they focus not only on economic needs but also on individual and social needs
considering poverty in its multi-dimensionality.
In order to improve the impact of microcredit on poor people's living conditions “it is not
sufficient anymore to demonstrate that microcredit is an effective instrument, now it is necessary to ask
how to develop it more?”(Rodriguez & La Calle n.d.: 10). In order to improve this instrument, it is
necessary to strengthen some variables, such as business and personal development training, and social
capital. First, a better business training can help people to take more responsible decision about credit
and improve their income and, consequently, their consumption. Secondly, it is important to foster
more personal development training which improves living conditions in terms of empowerment and
67
also social capital. Indeed, this would give people more power within its community. Finally, the
promotion of social networks intra-groups and inter-groups improves living conditions in terms of
social capital. Stronger and new social ties create a virtuous circle because they have positive impacts
on income, well-being and empowerment. Nevertheless, as emerged from the case study, other services
are necessary. Microcredit does not have remarkable impacts on education and health which can be
improved through a greater support from the state.
This leads to the prospects to improve the services offered to clients. First of all, a better
synergy between state and microfinance institutions would be beneficial for the improvement of poor
people's living conditions. Indeed, considering the validity of microcredit, the state could promote
investments and more cooperation with microfinance institutions. This would improve the synergy
between them and, consequently, the delivery of better services to improve the economic and social
condition of poor people. Moreover, another prospect is related to the synergy between microfinance
institutions. In order to offer better products and services it is necessary that microfinance institutions
could work with a cooperative logic and not competitive. This is necessary to reach a higher level of
coverage, improve products and services directed to clients and avoid over-indebtedness of clients. A
better integration between state, market and society would be advantageous for the improvement of
poor people's living conditions.
In conclusion, microcredit offered by microfinance institutions with an integrated approach is a
promoter of economic and social development. This instrument fosters cooperative and solidarity
relations which incorporate the economy in social relations. Indeed, this type of microcredit promotes
economic initiatives that not only satisfy economic needs but also the human and social ones. This
creates a new kind of economy which places at the center the human being and his needs. “A socioeconomy of solidarity as a way of life that encompasses the totality of the human being,
that
announces a new culture and a new form of producing to fulfill the needs of each human being and of
the entire humanity” (The Latin Meeting on a Culture and Socioeconomy of Solidarity in Miller 2005).
68
8. BIBLIOGRAPHY
Allard, J., & Davidson, C. (Eds.). (2008). Solidarity economy: Building alternatives for people and
planet. Lulu. Com. Available at
http://books.google.dk/books/about/Solidarity_Economy_Building_Alternatives.html?id=i2C2vZgTT0C&redir_esc=y Accessed 2/07/2014.
Amitava C. (2013). Ending Extreme Poverty and Promoting Shared Prosperity in World Bank website.
Available at http://archive.today/hqouU#selection-329.0-329.54 Accessed 15/07/2014.
Ballesteros & Valenzuela (2011). Estratificacion Socioeconomica en Encuesta de Hogares.
Departamento de Estudios Sociale. Istituto Nacional de Estadisticas (INE).
Bárcena A, Prado A., Hopenhayn M., Gerstenfeld P., Faijer D.J., Quarless D. & Pérez R. (2013). Social
Panorama of Latin America. United Nations. ECLAC. Santiago De Chile. Available at:
http://www.cepal.org/publicaciones/xml/8/51768/SocialPanorama2013.pdf Accessed: 9/7/2014.
Bateman M. (2010) Why Doesn't Microfinance Work? The Destructive Rise of Local Neoliberalism,
Zed Books. London. Kindle Edition.
Bateman, M., & Chang, H. J. (2009). The microfinance illusion. Unpublished manuscript. Cambridge:
University of Cambridge.< www. econ. cam. ac. uk/faculty/chang/pubs/Microfinance. Pdf.
BBC News (2014). Chile's Michelle Bachelet faces first protest [online]. Available at:
http://www.bbc.com/news/world-latin-america-26703699 Accessed 8/7/2014.
Becchetti, L. (2008). Il microcredito. icon, 39(051), 256011.
Brinton, M. C., & Nee, V. (Eds.). (2001). The new institutionalism in sociology. Stanford University
Press.
Bryman, A. (2012). Social research methods. Oxford university press.
Bunting M. (2011). Is microfinance a neoliberal fairytale? In The Guardian. Available at:
http://www.theguardian.com/global-development/poverty-matters/2011/mar/09/microfinanceneoliberal-fairytale Accessed: 5/7/2014.
Cabalin C. (2011). Why is Piñera's government so unpopular in Chile? In The Guardian. Available at:
http://www.theguardian.com/commentisfree/2011/aug/05/pinera-government-unpopular-chile
Accessed: 8/7/2014.
Chang, H. J. (2010). 23 things they don't tell you about capitalism. Bloomsbury Publishing USA.
Kindle Edition.
Charles-Coll, J. A. (2011). Understanding income inequality: Concept, causes and measurement.
International Journal of Economics and Management Sciences, 1(3), 17-28.
69
Contreras, D. (2007). Poverty, inequality, and welfare in a rapid-growth economy: The Chilean
experience. International Food Policy Research Institute.
Coraggio J.L. (2014). Una lectura de Polanyi desde la economia social y solidaria en America Latina.
Metropole Cadernos. Available at http://revistas.pucsp.br/index.php/metropole/article/view/17432
Accessed 25/7/2014
Corvalan M. (2014). El Microcredito crece en Chile, pero no cubre la demanda in La Tercera.
10/05/2014. Available at: http://papeldigital.info/lt/2014/05/10/01/paginas/072.pdf Accessed
14/07/2014.
Feiner S.F. & Barker D.K. (2006). Una critica del microcredito. Las Microfinanzas y la pobreza de las
mujeres. International Museum of Women. Available at http://www.imow.org/economica/index.
Accessed 9/06/2014.
Fernando, J. L. (Ed.). (2005). Microfinance: Perils & Prospects. Routledge.
Gobierno de Chile (2011). Encuesta Casen 2011. Modulo S: Salud. Ministerio de Desarrollo Social y
Ministerio de Salud. Available at:
http://web.minsal.cl/portal/url/item/cc345de4c9de0ea7e040010164012de8.pdf Accessed: 15/7/2014.
Goyenechea M. & Sinclaire D. (2013). Cómo se ha desmantelado la salud pública in CIPER (Centro
de Investigacion Periodistica). 27/05/2013. Available at: http://ciperchile.cl/2013/05/27/como-se-hadesmantelado-la-salud-publica/ Accessed: 15/7/2014.
Hughes, J.A. (1990). The philosophy of social research. London: Longman.
Hulme, D., & McKay, A. (2005). Identifying and measuring chronic poverty: Beyond monetary
measures. Indian Institute of Public Administration.
Hutch http://www.telegrafo.com.ec/economia/item/hatch-el-desarrollo-empieza-de-abajo-paraarriba.html
Icaza, A. M. S., & Tiriba, L. (2003). Economia popular. A outra economia. Porto Alegre: Veraz, 101109.
Kabeer, N. (2001). Resources, Agency, Achievements. Discussing Women’s Empowerment, 17.
Kritikos, A. S., Bolle, F., & Tan, J. H. (2007). The economics of solidarity: A conceptual framework.
The Journal of Socio-Economics, 36(1), 73-89.
Klein, N. (2007). La dottrina dello shock: l'ascesa del capitalismo dei disastri. Macmillan. Kindle
edition.
Kura, B., & Sulaiman, Y. (2012). Qualitative and Quantitative Approaches to the Study of Poverty:
70
Taming the Tensions and Appreciating the Complementarities. Qualitative Report, 17, 34.
Ledgerwood, J. (1998). Microfinance handbook: an institutional and financial perspective. World Bank
Publications.
Markantonatou, M. (2006). Neoliberalism. In M. Odekon (Ed.), Encyclopedia of world poverty. (pp.
764-767). Thousand Oaks, CA: Sage Publications, Inc. doi:
http://dx.doi.org/10.4135/9781412939607.n494
Martinez R., Marconi R., Lopez de Lerida J., Coloma P., Paredes M., Fajury L., Romero J.C. (2009).
Las Microfinanzas como instrumento para la superacion de la pobreza. Pontificia Universidad Catolica
de Chile. Chile
Mendoza M. (2012) 21 Sueños, Mandragora Ediciones. Santiago de Chile
Ministerio de Economia, Fomento y Turismo (2013). Emprendimiento Formal e Informal en Chile:
Análisis a partir de los resultados de la Tercera Encuesta de Microemprendimiento 2013. División de
Estudios Ministerio de Economía
Martinez R. et al. (2009). Las Microfinanzas como instrumento para la superacion de la pobreza.
Pontificia Universidad Catolica de Chile.
Max-Neef, M., Elizalde, A., & Hopenhayn, M. (1992). Development and human needs. Real-Life
Economics: understanding wealth creation, edited by: Ekins, P. and Max-Neef, M., Routledge, London,
197-213.
Miller, E. (2005). Solidarity economics: Strategies for building new economies from the bottom-up and
the inside-out. Posted to Grassroots Economic Organizing website: http://www. geo.
coop/files/SolidarityEconomicsEthanMiller. pdf.
Niccoli, A., & Presbitero, A. F. (2010). Microcredito e macrosperanze: opportunità, limiti e
responsabilità. EGEA. Kindle Edition.
Nobrega C. (2013). Solidarity Economy: finding a new way out of poverty in The Guardian. Available
at: http://www.theguardian.com/global-development-professionals-network/2013/oct/09/brazilsolidarity-economy-labour Accessed 4/7/2014
Nyssens, M. (1997). Popular economy in the south, third sector in the north: are they signs of a
germinating economy of solidarity?. Annals of public and cooperative economics, 68(2), 171-200.
OECD (2011). Society at a Glance 2011: OECD Social Indicator. Available at
http://www.oecd.org/berlin/47570121.pdf Accessed 25/07/2014.
Panth S. (2010). Bonding VS Bridging in People, Spaces, Deliberation. World Bank. Available at
http://blogs.worldbank.org/publicsphere/bonding-and-bridging Accessed 24/7/2014
71
Perri 6 & Bellamy, C. (2012). Principles of Methodology: Research Design in Social Science. Sage.
Phillips N. (2011). Globalization and Development in Global Political Economy. Edited by John
Ravenhill, Oxford University Press.
Pitt, M. M.; Casrtwright, J.; Khandker, S. R. (2003) Does micro-credit empower women?: Evidence
from Bangladesh. World Bank, Development Research Group, Rural Development.
Pizzorno, A. (1999). Perché si paga il benzinaio. Nota per una teoria del capitale sociale. Stato e
mercato, 19(3), 373-394.
Polanyi, K. (2007). The great transformation: the political and economic origins of our time. Boston:
Beacon Press.
Polanyi K. (1957) The Economy as Instituted Process in The Sociology of Economic Life edited by
Granovetter, M. S., & Swedberg, R. (Eds.). (2001). Westview press. Available at
http://faculty.babson.edu/krollag/org_site/org_theory/granovet_articles/polanyi_instit.html Accessed
25/7/2014.
Razeto L. (1993). Los caminos de la economía de solidaridad. Vivarium.
Razeto L. (1994). Sobre el futuro de los tallerres de tabajo y las microempresas in Economía &
Trabajo, Año 2, N° 3, 1994, PET, Santiago de Chile. Available at:
http://www.luisrazeto.net/content/sobre-el-futuro-de-los-talleres-de-trabajo-y-las-microempresas
Accessed: 5/7/2014.
Razeto L. (2006). Inclusion Social y Economia Solidaria in Conferencia dictada en el Simposio
Latinoamericano "Inclusión Social: Dimensiones, Retos y Políticas", Caracas, Marzo de 2006.
Available
at:
http://www.luisrazeto.net/content/inclusi%C3%B3n-social-y-econom%C3%ADasolidaria Accessed: 29/06/2014.
Razeto L. (n.d.). What is Solidarity Economics? In Luis Razeto's website. Available at:
http://www.luisrazeto.net/content/what-solidarity-economics Accessed: 15/07/2014.
Red para el Desarrollo de la Microfinanza en Chile (2013). Informe Estado de las Microfinanzas en
Chile 2013. Available at: http://www.redmicrofinanzas.cl/web/wp-content/uploads/2014/04/InformeEstado-de-las-Microfinanzas-20131.pdf Accessed: 15/7/2014.
Roodman, D., & Morduch, J. (2009). The impact of microcredit on the poor in Bangladesh: Revisiting
the evidence. Center for Global Development Working Paper, 174.
Rosenberg R. (2009). Does Microcredit really help poor people? In CGAP (15/10/2009). Available at
http://www.cgap.org/blog/does-microcredit-really-help-poor-people Accessed 17/07/2014.
Shepard, E. (2011). Situating Micro-Finance on a Theoretical Spectrum: The Case of Bolivia. Atlantic
International Studies Organization. Available at http://atlismta. org/online-journals/0607-journal72
developmentchallenges/situating-micro-finance-on-a-theoretical-spectrum/ Accessed 15/07/2014.
Thomas, C. (2008). Poverty, development, and hunger in The Globalization of World Politics. Edited
by Baylis, J., Smith, S., & Owens, P..Oxford University Press.
Utting P., Mathei M.A., Van Dijk N. (2014). Focus on Social and Solidarity Economy in UN Special.
Available at http://www.unspecial.org/2013/04/focus-on-social-and-solidarity-economy/ Accessed
15/07/2014.
Wade R.H. (2011). Globalization, Growth, Poverty, Inequality, Resentment, and Imperialism in Global
Political Economy. Edited by John Ravenhill, Oxford University Press.
Wolf, M., & Wade, R. (2002). Are Global Poverty and Inequality Getting Worse?. Prospect Magazine,
72, 16-21.
Williamson, E. (2003). The Penguin History of Latin America. Penguin UK.
Walliman, N. (2006). Social research methods. Sage.
World Health Organization (2008). Public tensions, private woes in Chile in Bulletin of World Health
Organization. Nov 2008; 86(11): 825. Available at:
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2649550/ Accessed 20/07/2014.
Yin, R. K. (2009). Case study research: Design and methods. Sage publications.
SITOGRAPHY
Biblioteca del Congreso Nacional de Chile website http://www.bcn.cl/leyfacil/recurso/ficha-deproteccion-social
Business Dictionary http://www.businessdictionary.com/definition/tacit-knowledge.html)
Chronic Poverty Research Center website http://www.chronicpoverty.org/page/about-chronic-poverty
Direccion del trabajo website http://www.dt.gob.cl/1601/w3-channel.html
Gobierno de Chile website http://www.gob.cl/
Grameen Bank website http://www.grameeninfo.org/index.php?option=com_content&task=view&id=43&Itemid=93
Minsterio de Desarrollo Social website http://www.ministeriodesarrollosocial.gob.cl/
Red para el Desarrollo de la Microfinanza en Chile website www.redmicrofinanzas.c
OECD website http://www.oecd.org/social/inequality.htm
World Bank Data website http://data.worldbank.org/
73
ANNEXES
Table 1: A resume of social and economic conditions of interviewed people
CLIENT
PAULA
FINAM
FINAM
0-4213
0-4213
0-4213
0-4213
8500-11734
4214-8500
47
36
33
39
47
45
POBLACION
PADRE
HURTADO
PUDAHUEL
LA FLORIDA
HEAD OF HOUSEHOLD
NUMBER OF PEOPLE
WHO LIVE IN THE
HOUSE
NO
NO
NO
NO
NO
5
3
4
4
4
INSTITUTION WHERE
THEY GET THE LOAN
FPS*
AGE
HEALTH PROGRAMME
LEVEL OF EDUCATION
LUISA
MARCELA
SUSANA
TUNINETTI
SUSANA
MAKARENA
LIDIA
MARIA EUGENIA
ROSA
ELIZABETH
HUGO
ROSA ZAPATA
VERONICA
FINAM, BANCO
ESTADO
FINAM
FONDO
ESPERANZA
FONDO
ESPERANZA
FONDO
ESPERANZA
FONDO
ESPERANZA
FONDO
ESPERANZA
0-4213
0-4213
4214-8500
0-4213
more than 11734
4214-8500
0-4213
0-4213
21
55
56
61
55
54
62 AÑOS
35 AÑOS
LA FLORIDA
ESTACION
CENTRAL
COLINA
PEÑALOLEN
PEÑALOLEN
PEÑALOLEN
PEÑALOLEN
PEÑALOLEN
NO
NO
NO
YES
YES
YES
YES
YES
NO
5
3
2
4
5
5
5
2
8
N.A.*
N.A.*
PUBLIC SYSTEM PUBLIC SYSTEM
FONASA
FONASA
ELEMENTARY
SCHOOL
HIGH SCHOOL
(INCOMPLETE)
BANIGUALDAD BANIGUALDAD BANIGUALDAD BANIGUALDAD BANIGUALDAD
PUENTE ALTO PUENTE ALTO PUENTE ALTO
PUBLIC SYSTEM PUBLIC SYSTEM PUBLIC SYSTEM PUBLIC SYSTEM PUBLIC SYSTEM PUBLIC SYSTEM PUBLIC SYSTEM PUBLIC SYSTEM PUBLIC SYSTEM PUBLIC SYSTEM
FONASA
FONASA
FONASA
FONASA
FONASA
FONASA
FONASA
FONASA
FONASA
FONASA
ELEMENTARY HIGH SCHOOL
ELEMENTARY HIGH SCHOOL ELEMENTARY HIGH SCHOOL
HIGH SCHOOL HIGH SCHOOL
HIGH SCHOOL
SCHOOL
(INCOMPLETE)
SCHOOL
(INCOMPLETE)
SCHOOL
(INCOMPLETE)
ELEMENTARY
SCHOOL
(INCOMPLETE)
MORE THAN
THE HIGH
SCHOOL
HIGH SCHOOL
SELLER OF
HAIRDRESSER CLOTHES AND PASTRY CHEF
FOOD
ENTERPRISE
GROCERY
STORE
SEAMSTRESS
CATALOGUE
MERCHANT
BUSINESS ADDRESS
HOME
HOME
HOME
HOME AND
HOME
DELIVERY
SERVICE
TRADE FAIR
FORMAL/INFORMAL
FORMAL
INFORMAL
INFORMAL
INFORMAL
INFORMAL
DEBTS
GLORIA
SELLER OF
CLOTHES
SEAMSTRESS
GROCERY
STORE
SEAMSTRESS
STREET
PEDLER
SELLER
POUND SHOP
STREET
PEDLER
HOME AND
HOME
DELIVERY
TRADE FAIR
HOME
HOME
TRADE FAIR
STREET
TRADE FAIR
HOME
STREET
FORMAL
FORMAL
INFORMAL
FORMAL
INFORMAL
INFORMAL
INFORMAL
FORMAL
INFORMAL
CASA
COMERCIAL
N.A.*
N.A.*
N.A.*
N.A.*
FINAM,
FUNDACION
FONDO
FALABELLA,
CONTIGO,
FALABELLA AND
BANIGUALDAD BANIGUALDAD BANIGUALDAD, BANIGUALDAD BANCO ESTADO
ESPERANZA,
RIPLEY, HITES,
BANEFE, BCO
FINAM
AND FINAM
AND FINAM FINAM, HITES AND FINAM
AND FINAM
FINAM
BANIGUALDAD
ESTADO,
FONDO
ESPERANZA
*FPS:
**N.A.: not available
Table 2: resume of the impacts on income (1st part)
CLIENT
A
B
C
D
E
F
G
BEFORE (1995) AFTER (2005) BEFORE (2012) AFTER (2014) BEFORE (2012) AFTER (2014) BEFORE (2012) AFTER (2014) BEFORE (2012) AFTER (2014) BEFORE (2012) AFTER (2014)
BEFORE
(2012)
AFTER
(2014)
NET INCOME
$100.000 CLP
EMPLOYMENT
2 (HER
HUSBAND)
FIXED ASSETS
$900.000
F*
$70.000
$139.000
$100.000
$200.000
$50.000
$100.000
$50.000
$100.000
$50.000
$95.000
$70.000
$130.000
1
1
1 (SHE IS
LOOKING FOR
ANOTHER
PERSON)
1
1
1
1
1
1
1
1
1
1
$1.200.000
$600.000
$830.000
/
/
$150.000
$150.000
/
/
$100.000
/
/
ENTREPRENEURIAL
KNOWLEDGE
/
/
WORKING CAPITAL
/
/
/
How to calculate costs and prices
How to calculate costs and prices
How to calculate costs and prices
of their products and services, and
of their products and services, and
of their products and services, and
generally to manage better thei
generally to manage better thei
generally to manage better thei
businesses. Moreover she took a
businesses
businesses
course in pastry-making.
/**
She bought fabric
She bought commotidies.
She bought commotidies.
She bought commotidies.
How to calculate costs and prices How to calculate costs and
of their products and services, and prices of their products and
generally to manage better thei services, and generally to
businesses. Moreover she took a manage better thei
course in pastry-making.
businesses
She bought commotidies.
She bought commotidies.
Table 3: resume of the impacts on income (2nd part)
CLIENT
NET INCOME
EMPLEO
CAPITAL FIJO
H
I
BEFORE
(2008)
AFTER
(2014)
$250.000
$780.000 $2.000.000 $1.500.000
2
2
She bought equipment with
the money of BancoEstado.
BEFORE
(2010)
J
1
AFTER
(2014)
1–2
She bought equipment with
the money of the
institutions***
K
L
M
N
BEFORE
(2013)
AFTER
(2014)
BEFORE
(2011)
AFTER
(2014)
BEFORE
(2011)
AFTER
(2014)
BEFORE
(2013)
AFTER
(2014)
BEFORE
(2013)
AFTER
(2014)
$40.000
$99.000
$50.000
$100.000
$80.000
$180.000
$120.000
$200.000
$20.000
$57.500
1
2
1
1
1
1
1
1
3
3
/
/
/
/
/
/
/
/
/
/
CONOCIMIENTO
EMPRESARIAL
She participated to courses She participated to courses She participated to courses She participated to courses
She participated to courses She participated to courses She participated to courses on how to manage the on how to manage the on how to manage the on how to manage the
of Fondo Esperanza
of Fondo Esperanza on of Fondo Esperanza business giving by Fondo business giving by Fondo business giving by Fondo business giving by Fondo
Esperanza
Esperanza
Esperanza
Esperanza
CAPITAL DE
TRABAJO
She bought commotidies. She bought commotidies. She bought commotidies. She bought commotidies. She bought commotidies. She bought commotidies. She bought commotidies.
F* The client closed the grocery store, where the income was mainly generated by the slot machines,
because of the high competition and the arrival of games as Play Station and Nintendo.
** the client has a course on how to repair her equipment but not from a microfinance institution.
*** The client won a project with the public FOSIS and she bought a photocopier.