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183 Chapter Ten Public Goods Provision Aided by Microfinance Groupthink, Ideological Blinkers, and Stories of Success Philip Mader Introduction The spectacular growth of microfinance activities has brought millions of poor people into the reach of the global financial market. But this growth has not merely been quantitative; microfinance has also qualitatively expanded into new areas. Organizations such as the World Bank and the Bill and Melinda Gates Foundation increasingly understand credit as a means of enhancing access to goods like education, health care, irrigation, and water and sanitation. Instead of fostering small businesses or funding consumption, which microlending originally concentrated upon, numerous programs since the turn of the millennium have sought to use microcredit to enhance or replace the state’s traditional role in the area of public goods provision.This contribution focuses on the application of microcredit to water and sanitation, an idea that has enjoyed prominent support from celebrities like Matt Damon and toward which ­ PepsiCo, for instance, made the largest charitable donation in its corporate history.1 Specialized microfinance media have observed, “The latest craze in the creative use of microfinance as a generator of positive externalities is the use of microcredit for the provision of clean water,” but the same article also goes on to note that “there are some potentially significant barriers to its implementation that would occur to any critical thinker” (Jenkins 2011). Indeed, one may ask, as this chapter does, why, of all things, should microcredit be touted as a solution to the lack of water and sanitation—or health care, irrigation, or education—in poor communities? Why replace collective solutions with private credit, making poor people use debt to pay elevated prices for second-­ rate services? The focus here is on a particular project for linking microedit to water and sanitation (watsan) in Andhra Pradesh, India, and the way in which such 184 Philip Mader projects are promoted as a success. But the larger phenomenon under study remains the extension of microfinance beyond debt for entrepreneurship and consumption and into access to basic resources that usually have been collectively governed as commons or public goods. This area is currently emerging as an important new frontier for a microfinance industry whose promises of poverty alleviation and development promotion are more in question than ever. As this chapter shows, microfinance can be—and is—used to commodify, privatize , and financialize public goods without the need for politically mandated privatization programs. Loans make these goods saleable as commodities, making access to them a private problem and bringing their governance closer to the financial market. Whatever the intentions of the promoters of microfinance for public goods may be, such projects serve to extend the reach of private finance into the governance of traditionally publicly managed goods.2 Of course, these attempts to commodify, privatize, and financialize public goods are by no means always successful—as the evaluation here shows, they often encounter severe problems—but it is illuminating to study how and why some actors energetically pursue the extension of water and sanitation resources to poor people via the microfinance intervention. The processes of groupthink that are inherent to epistemic communities may help to explain why, despite lack of proof, so many proponents of microfinance conclude again and again that more microfinance is key to addressing social problems. Microfinance for Public Goods: An Overview The concept of using microfinance for the provision of public goods dates back to the 1990s. Its economic and ethical foundation is the promise of a situation in which three parties benefit: the client who takes a microloan and buys access to a service, the lender who earns interest on that microloan, and the service provider who realizes a profit from the sale of the good (e.g., water or health care) to the borrower. The central assumption underlying this “win-­ win” narrative is that small-­loan finance from private microfinance institutions (MFIs) can act as a substitute for the financing of goods and services by public bodies. The fact that this substitution entails microfinance-­ based provision replacing the activities of state and municipal providers is often not made fully obvious in the literature, but it was revealed in the earliest publications by the US Agency for International Development (USAID), which suggested water and sanitation as part of an emerging “market for housing improvements” (Varley Public Goods Provision Aided by Microfinance 185 1995, 52). Robert Varley (1995, ix) states, “Municipal or state-­ owned utilities are often inefficient, overregulated, and unable to supply...


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