Microfinance,

Inequality, and Peace:

Comparing discourse and lived experience
Ewa Protasiuk & Sarah Wooton
Davis Projects for Peace 2015

Introduction

This report summarizes the findings of a study we completed through the Davis
Foundation Projects for Peace program, which funds undergraduate projects annually that
promote peace and address the root causes of conflict among parties and should be building
blocks for a sustainable peace [1]. Our study focused on the experiences of people who
borrow from microfinance institutions (MFIs) in Nakuru, Kenya.
Microfinance is a development strategy that has been associated with world peace.
Microloans are small loans given to individuals who are generally unable to access capital from
larger-scale financial institutions. Over the course of the last thirty years, this strategy has been
increasingly promoted within the international development community. Recently, several
prominent Western-led international bodies, like the United Nations and the Norwegian Nobel
Committee, have associated microfinance, as well as development at large, with peace [2, 3]. In
2006, Muhammad Yunus, the father of microfinance who founded the Grameen Bank in
1983, won the Nobel Peace Prize in 2006 (alongside the Bank itself). The chairman of the Nobel
Committee justified the decision citing the link between rising per capita income and
decreasing conflict [4]. Dr. Yunus himself states that poverty is a threat to peace. For building
stable peace we must find ways to provide opportunities for people to live decent lives [5].
The press release for the 2006 Nobel Peace Prize goes on to note that lasting peace can not be
achieved unless large population groups find ways in which to break out of poverty. Micro-
credit is one such means [3].
However, the link between peace and microcredit is not necessarily airtight. Some
research suggests that microfinance does not do what it claims to do: namely, uplift people
from poverty. Furthermore, this research has also been limited in its scope; it is almost entirely
quantitative. Qualitative research focusing on the experiences of borrowers themselves is
lacking; our study sought out these voices especially.
This report examines the experiences of people who borrow from MFIs in Nakuru,
Kenya. It compares them to the assumptions behind the Western association between peace
and microfinance. These assumptions and particular worldviews make up discourse. We have
found that the experiences of the people we interviewed often diverged from narratives of
microfinance present in mainstream Western discourse. While our study does not necessarily
suggest that microfinance is inherently bad, the experiences of our participants imply that
microfinance does not create peace in the way that Western discourse suggests.

Methods


We chose Nakuru, Kenya as our study site for several reasons. Sub-Saharan Africa has
been the focus of countless development efforts, and microfinance has emerged as a leading
strategy in this area. While the scope of microfinance use in sub-Saharan Africa has not been
rigorously measured, some reports suggest that the microfinance sector in Kenya is the best
1

developed in the region [6]. We chose to base our investigation in Nakuru as Sarah had
previously established contacts in the town through a month-long research project she
conducted in 2013.

After arriving in Nakuru, we spoke to several of these contacts, who connected us to
fellow borrowers who agreed to participate in our project. We proceeded with the snowball
sampling method, asking each participant whether they knew other borrowers who might be
willing to speak with us. Over the course of the 8-week-long study project, we interviewed 28
individuals (13 men, 15 women) after obtaining oral consent from each. While many of them
had borrowed from multiple sources, 22 had borrowed from MFIs, 5 had borrowed from
Savings and Credit Cooperatives1 (SACCOs), and 24 had borrowed or participated in table
banking/merry-go-rounds.2
We conducted interviews in a semi-structured way heavily influenced by the life history
method. Through this method, we sought to conduct our study in a humanistic and participant-
centered approach. However, as we needed to discuss lending specifically, we also structured a
portion of the interview to address those questions directly.
Each interview was conducted in the location of the participants choosing. Interviews
ranged between thirty minutes and one hour. Before meeting for the interview, we asked each
participant whether she/he preferred English or Swahili. If the participant indicated no
preference, we conducted the interview in English. Swahili interviews were interpreted by one
of our two interpreters. After conducting some initial interviews, we realized that, for several
participants, discussing ones upbringing and life circumstances was much more upsetting than
we had anticipated. We made a conscious effort to shift conversation away from these topics if
they were noticeably affecting the participant. Also, in an effort to provide our participants with
additional control over the interview, we asked them to choose whether they wanted to begin
with discussing biographical information or their experiences with loans.
Many of our participants chose to leave their workplace in order to speak with us during
business hours. In appreciation for their time and the income they may have sacrificed, we
offered a small compensation of KSh 200 (about 2 USD, an amount suggested to us by contacts
in the field) to all participants, as well as a meal if we met at a restaurant.

Results and implications

Issues of access

Mainstream definitions of microfinance center on microfinances ideal function as
something for the poor or low-income people [7-8]. According to Yunus, as quoted in the
Peace Prize presentation speech, micro-credit is a well-tried and well-founded method that
can bring financial services to the poorest of the poor [4].
1

Brown et. al (2011) define SACCOs as formalized financial institution[s] that, like modern
western credit unions, are member-owned and hence they understand the financial conditions
2

Merry-go-rounds are informal groups in which each member contributes the agreed-upon
monetary amount (usually relatively small) to the pot at each meeting. The full pot of money is
then given to one member at each meeting.
2

However, participants cited several barriers to accessing microfinance in Nakuru that

would prevent the poorest of the poor from receiving microloans. A common theme was the
need to have some kind of security one could demonstrate to MFIs, e.g. collateral, a steady
business or steady employment, or a guarantor [9-16]. Elizabeth,3 a young wife and mother of
three children, stated that her parents had never taken out loans, and neither had her husband.
They were not able to do so because they did not have a guarantor or security with which to
take the loan. Her parents have worked as casual agricultural laborers throughout her life, and
her husband has lacked permanent work [16]. Mary, a student who was previously a teacher,
stated that there is no way she could obtain a loan right now, as she does not currently have a
job [15].
Some participants noted additional barriers to access such as: lack of information [13],
past inability to repay a loan [17], complicated paperwork [18], and long waiting periods for the
disbursal of funds [9, 18-19]. The last case can occur when others who have loans out with that
particular MFI have not repaid their loans. Three participants described fear of MFIs as
something that discourages people from taking out loans. These participants noted that Kenya
Women Finance Trust in particular had developed a reputation for harsh policies. In turn, their
mothers were afraid of taking out loans for fear that the MFI would take their land or
possessions if they could not pay [20-22]. In the words of Lucy, who works in a print shop, Our
mom cant take loans! [20]
If the poorest of the poor (and others) are unable to access microloans, then it is clear
that microfinance is not uplifting people from poverty. By extension, it is not necessarily
building peace among this population.

Use of loans

Microfinance discourse maintains that microloans are meant for entrepreneurs and for
the expansion of business. In the words of Yunus, this is not charity. This is business: business
with a social objective, which is to help people get out of poverty [23]. This sentiment was
echoed by Lillian, a participant who works with womens microfinance groups. According to
Lillian, loans need to be used for investment in a business, versus being used for school fees or
groceries. Groups that have ideas for the money do better [21].
Most of our participants used their loans for business; however, a significant portion of
them had also used microloans for family necessities or emergencies [9-12, 17-20, 22, 24-34].
Four women, for example, talked about using microloans to pay for their childrens school fees
[12, 27, 33-32]. Another participant took out a loan to pay for a car accident [28], while yet
another said that her family had used a microloan to pay for her mothers hospital bills [35].
While microfinance discourse implies that these alternative uses are bad uses of loans (as
they provide no immediate return with which to pay back the loan), we might challenge the
usefulness of this conclusion. Rather than passing judgment on these uses, we can acknowledge
that people are using microfinance to serve their own needs and if those uses are not deemed
proper under microfinance discourse, then microfinance is not, in fact, suited to serve some of

Names of participants have been changed.

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the basic needs of Kenyans in poverty. This poses a challenge for microfinances peacebuilding
potential.4

Impediments to repaying loans

Lend the poor money in amounts which suit them, teach them a few basic financial
principles, and they generally manage on their own, Yunus claims [36]. This statement,
reflective of mainstream microfinance thinking, implies that ones ability to repay a microloan
depends only on ones business acumen. If one has sufficient skill, one is likely to succeed.
However, participants discussed a variety of factors that influenced their ability to repay.
Some of these factors still related to business, but had little to do with the participants
business skills. For example, some participants had seasonal work. Thus, their income varied
seasonally, but they were still expected to make the same monthly loan payment [12, 19, 20].
Others took loans for new businesses and were expected to start repaying the loan before the
business had started to make a profit [24, 31]. Several participants businesses were robbed
[10, 17, 32]. Samuel took out a loan to buy a matatu. The matatu was in an accident, and it is
still waiting to be fixed in garage; Samuel is unable to make any profit off the matatu to pay
back the loan [22].
A singular event that impacted many participants, their businesses, and their ability to
repay loans was the county governments clean up of Nakuru town. In January and February
2015, hawkers and petty vendors in the Nakuru Central Business District were evicted from
their places of sale in accordance with the Countys long term plan to bring back the lost glory
of the town; according to the County, the evictions were necessary for health reasons and for
the development of the town [37]. However, these evictions affected the businesses of many
participants [10, 25, 29, 31-34], and several of these participants explicitly stated that the
cleaning affected their ability to pay loans [10, 25, 29, 34]. Joseph, for example, was rendered
without a place to sell his stock. He had previously invested loans in his business and was
somewhat well established, but after the cleaning, he had to return to hawking, his previous
occupation, and he lost his old customers. During the time of the cleaning, he was in the midst
of paying back a loan of KSh 30,000 (about 10,000 USD); this loan became a great challenge to
repay [25]. John, who operates a movie store, was also dislocated during the cleaning. He has a
new place to run his business, but his old customers dont know where he is. He is currently
repaying a loan; five months after the cleaning, the main challenge he faces is the loss of his
customers [29].
Other things that impacted borrowers ability to pay loans included an unexpected
pregnancy in the family [33] and sickness of a child or a parent [30, 35]. One participant
described periodic ethnic violence in his hometown as affecting his parents ability to pay their
4

Additionally, we want to note that the distinction between good and bad uses of microloans is
gendered. A good use of microloans is for business, a sphere of life which has been associated with
men in the West. Bad uses, like school fees and food, have to do with the household, which has been
associated with women. Maintaining that different uses of microloans are good and bad in this way
maintains that what has been masculinized is good and that what has been feminized is bad.
4

loans [17]. Only two participants said that lack of business savvy (e.g. not knowing how to
spend the money) was a challenge in repaying their loans [12, 29].
Differences between the lived experience and discourse of loan repayment also suggest
that, as a result of structural inequities, microfinance and peacebuilding have a tenuous
relationship. For example, the county cleaning was a government-led initiative, which impacted
particular populations of people and not others. While people with more capital or with
government connections were left relatively unaffected, people without these connections and
without a physical structure within which to sell were left displaced and without customers.
Thus, while microfinance might have helped some of these entrepreneurs expand their
businesses, microfinance could not stop the county cleaning, nor could it, in most cases, help
those who were displaced. In fact, some participants said that their obligation to loan
repayment compounded their difficulties because not only were they left without customers,
but they were also unable to repay the loan and often suffered the consequences. Thus, while
microfinance may help in some ways, it cannot address certain structural inequities that exist
outside the purview of pure business. Davids discussion of ethnic violence as precluding loan
repayment might serve as a clearer example. Having seen that ethnic conflict impacted his
parents ability to repay their loans, rather than rely on the benefits of microfinance to make up
for the losses inflicted by the violence, he chose to move to Nakuru to start his business [17].
Thus, we see that while microfinance might benefit borrowers in some ways, it is not always
effective in uplifting people from poverty because there are other structural inequities and
conflicts at play.

When repaying loans is harmful

In development discourse, microfinance is almost always something that helps; it never
harms. Poor people, with access to savings, credit, insurance, and other financial services, are
more resilient and better able to cope with the everyday crises they face[8]: sentiments like
this abound. However, we found that repayment sometimes means sacrificing personal needs
and security.
Some participants said they lacked basic necessities on the days when they were
required to make payments on their loans; money had to go towards repayment. Mercy, who
sells bananas in a market, told us that she and her family would eat peanut food on these
daysany food that they could find to hold themselves over [12]. Denis, who supplies
tomatoes to the market, said he lacked money for school fees because he had to repay his loan.
His younger brothers were supposed to stay with him in Nakuru while they went to secondary
school, but because he could no longer pay for them while repaying the loan, they were not
able to leave their village [18]. Alice, a hawker and casual laborer, described her childhood
situation and the strains her parents loan put on the family in this way: the parents who are
repaying the loan are the same parents who are providing for us. That is, repaying the loan
inherently strained her parents abilities to provide for the family [31].
Many participants discussed the loss of household possessions and/or business stock as
a possible result of an inability to repay a loan on time. Multiple participants said that MFIs are
more severe when it comes to repayment than other types of financial lending groups. For
example, Linda, a hawker and single mother, said that when you are late to pay a loan, MFIs
5

have no mercy in collecting your personal belongings [10]. While MFIs had collected the
belongings of only a handful of our participants, most participants could name someone else
who had experienced this personally. Loss of household possessions and business stock poses a
significant insecurity, which may then lead to further insecurities.
Loans can also impact the mental health of borrowers. Some participants used words
associated with poor mental health and anxiety while describing their loan experiences, like
torturing and stressed [18, 28]. Some said they could go crazy because of the loan [18], or
that they felt like MFIs would come to get them while they were sleeping [34]. One participant
said that the only thing MFIs want is their money, and he went on to joke that they didnt care
about what is happening in your life, if you are sick [18]. The stress put on borrowers by MFIs
can also extend beyond just the immediate borrower. Linda said that because MFIs had
continuously come to take her belongings, her child was being traumatized. Her son would
ask, Mummy, wheres the chair? Wheres the TV? [10]
Additionally, a few participants said they had to take money from their savings to repay
their own loans or even friends loans [29, 33]. If savings are a source of financial security, this
practice poses a form of insecurity--a further harm.
The harms that some participants encountered in the process of repaying their loans
certainly diverges from the dominant image of microfinance as something which can only have
positive effects on the lives of borrowers.

Dependency and microfinance

According to Yunus, micro-credit promotes entrepreneurship, and puts each individual
poor person, especially women, in the driving seat of their own lives [5]. This statement
suggests that microfinance provides the poor with tools for complete self-sufficiency. However,
in our research, participants talked about their significant, continued reliance on other friends,
family, and other financial groups in order to repay their loans [10, 12, 17, 19, 25, 28, 30-31].
For example, when business was going badly and Grace couldnt afford to make a loan
payment, she borrowed from friends and repaid them when business got better. She also
borrowed from friends when her childs sickness kept her from paying the loan [30]. Stephen,
on the other hand, asked his friend to provide the collateral for his first loan when he couldnt
pay [28]. Joseph, too, described repaying microloans with the help of his friends and other
social support systems like his youth group. He also relied on other financial groups like merry-
go-rounds [25]. In sum, then, microfinance is not resulting in financial independence of
borrowers. They are still very much dependent on existing social networks and other informal
financial groups.5



5

While we want to point out the limitations of microfinance in fostering financial independence, we do
not wish to imply that the concept of independence is inherently good, or that dependence--financially
or otherwise--is inherently bad. Rather, we are merely attempting to point out inconsistencies in the
microfinance discourse and realities on the ground.
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Conclusion

When we compare what Dr. Yunus, the Nobel Prize Committee, and Western
organizations say about microfinance to what borrowers in Nakuru say about it, several
differences emerge. These differences trouble the Western association between peace and
microfinance.
So, does microfinance build peace? This was the question that first drew us to Nakuru.
Our study is ultimately not well suited to answer this question, or to make broad claims about
it. However, we do want to argue that if microfinance is building peace in Nakuru, it is not to
the extent that Western discourse claims: microfinance is not accessible to the poorest of the
poor; microfinance does not address all the needs of the poor (as evidenced by non-
entrepreneurial uses of loans); it does not address larger, structural inequities; repaying loans
can involve certain insecurities; lastly, microfinance does not necessarily result in the economic
self-sufficiency of borrowers. While we are not claiming that microfinance provides no benefits
for borrowers, or that it is inherently bad,6 our research suggests that microfinance in Nakuru
is not building peace in the way that Western discourse claims it does.
But here we might begin to question what peace really means within this discourse.
For Yunus, peace seems to mean a lack of direct violence (e.g. physical violence). Some
theorists, however, push back against this idea. John Galtung, for example, notes that highly
unacceptable social orders would still be compatible with peace if the sentiment behind
Yunus definition holds true. Peace, according to Galtung, is not just the absence of direct
violence. Peace happens when there are no societal inequities [39].
According to Yunus and the Nobel Committee, microfinance builds peace because it
provide[s] opportunities for people to live decent lives, thus combatting the frustrations,
hostility and anger generated by abject poverty which may lead to direct violence. In this
formulation, even in its ideal form, microfinance aims only to eliminate poverty--not to
eliminate social stratification. That is, microfinance does not change the existing social order: it
merely allows (some) people to live better lives in the existing, inequitable social order.
Therefore, unless we accept social injustice as a valid form of peace, microfinance remains an
inadequate means of peacebuilding.

Improving microfinance: Suggestions from borrowers

To conclude, in most interviews we conducted with people who borrowed from MFIs,
we asked participants the following question, or a version of it: if you could change anything
about microfinance, what would it be?
Several participants gave suggestions having to do with access to loans. These
suggestions included trainings or sensitization among people interested in loans, including
youth and women, in order that people form better business ideas [20-21]. Additionally, one
participant said that in Nakuru, the people who know about loans are educated people. People
who live in the slums do not know about loans, he said, so he suggested that MFIs should focus
6

In fact, a common refrain among participants who used microfinance was that if business is good, then
paying is fine, and loans can do good things [11, 19, 22, 24, 32-35].
7

on those people [28]. Some participants also said that MFIs should disburse funds faster, as
sometimes they can take a long time to disburse funds that are needed at the time of the
request [17].
Another common suggestion was the extension of repayment period. Several
participants cited the lack of a grace period for newly disbursed funds as a problem with
microfinance [30-31]. In the words of Grace, "Get your loan today, pay next week" [30]. More
time for repayment would allow the business to take, remedying an issue several participants
mentioned in repayment [24, 31]. Alongside this theme, a few participants stated that they
would like to have more time to repay when business has gone down, and that MFI personnel
should assess their personal situation at times that they cannot make payments [10, 25].

References

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9) Interview 21 June 2015b
10) Interview 25 June 2015a
11) Interview 25 June 2015b
12) Interview 26 June 2015c
13) Interview 27 June 2015a
14) Interview 27 June 2015b
15) Interview 1 July 2015b
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20) Interview 29 June 2015a
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21) Interview 29 June 2015b

22) Interview 30 June 2015
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24) Interview 16 June 2015b
25) Interview 19 June 2015
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28) Interview 22 June 2015b
29) Interview 22 June 2015a
30) Interview 24 June 2015
31) Interview 26 June 2015a
32) Interview 1 July 2015a Benta
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34) Interview 9 July 2015 Derrick
35) Interview 7 July 2015 Metrine
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