From Credit to Capabilities: Assessing the Role of Microfinance in Expanding Instrumental Freedom and Fostering Development in Southwest Bangladesh

Abstract

Microfinance undeniably constitutes a subject of extensive and contemporary relevance, both in Bangladesh and across the international landscape, amid the rush of diverse initiatives aimed at attaining development, and countering the persistent prevalence of poverty across nations. The purpose of this mixed-method study is to explore the empirical and intuitive aspects of microfinance and to examine the role of microfinance as a development initiative in terms of its influence on poverty reduction outcomes, in particular on human capabilities. To understand and rationalize the role of microfinance, this study emphasizes the human-centered approach, adopting Sen's capability approach from a broader perspective that includes capabilities, functionings, and agency. The findings of this study reveal the vulnerable and very vulnerable role of microfinance in extending instrumental freedoms and substantive freedoms, correspondingly. This does not portray the role of microfinance as worthy of praise, but rather as being considered perilous. In essence, this circumstance makes microfinance more worthy of criticism than praise, accentuating its shortcomings rather than extolling its virtues. Again, in most instances, microfinance cannot contribute resiliently to eliminating various deprivations of basic capabilities. Instead, it contributes to creating more vulnerable situations by exacerbating multidimensional deprivations of basic capabilities, albeit in varying degrees, reflecting the existence of poverty and unfreedoms among microfinance clients. As a result, it can be perceived that microfinance is not able to guarantee development among microfinance clients. This study suggests that if the microfinance initiative is designed to focus on the aspirations of the microfinance clients and on enhancing their freedoms or capabilities to achieve functionings they (microfinance participants) value and have reason to value, then this initiative can end many controversies around and arguably reap rewards.