Microfinancial Instruments

Abstract

 

As macroeconomic tools are failing in the current global economic crisis (Stiglitz, 2009), microeconomic tools take on an even more important role. The author argues that as macroeconomic instruments are disconnected from individual workers – yet affects billions of them, microeconomic instruments are needed to provide social justice and protection to these same individuals at the mercy of the macro economy. The argument is briefly presented by discussing three technical assistance tools the ILO uses in conjunction with various governments, organizations, and civil society initiatives world-wide.

 

 

Introduction

 

Lord Mark Malloch Brown reminded us of the necessary changes to be made (during his address to the ILO concerning the preparation for the G20 Summit on stability, growth, and jobs) to financial instruments in order to mitigate the ill effects of an under-regulated global economy. He did not, due to obvious time restraints, specify in more specific detail the nature of these macroeconomic instruments (removed from mortgages) to be discussed at the upcoming G20 Summit in London.

            It is thus, perhaps necessary, to write regarding the importance of using more recent microfinancial instruments as realistic and viable tools for the changing sphere of economics. Whereas macrofianancial instruments operate on a level often disconnected to the individual worker but still impacting said worker; microfinances deal on the individual level and can help lessen the harsh effects of the international economy, natural disasters, and personal loss.

            The ILO had said it quite rightly 90 years ago: social justice is not merely an economic tool, but rather an instrument of peace. Where a person’s dignity is taken away, there could be anger. When a person has been committed an injustice, violence may erupt to right the wrong. Microfinances commensurate with the Decent Work Agenda and the conventions and recommendations which compose the body of the International Labour Standards can help individuals maintain their dignity and stave of abuses as they will not be so desperate as to succumb to those preying circumstances.

            It is with this general reasoning that the argument begins as to why microfinances should be discussed at length in London this year. A brief analysis of certain tools, their benefits, and general behaviour in the global economy will contribute to this point.

 

 

Micro-loans

 

Purpose: Provide accessible credit typically to individuals living near or below the poverty line. However, micro-loans can extend to co-ops and other bodies.

 

Benefit: This credit provides more opportunity for individuals wishing to buy means of production (materials) to enhance their trade, etc. and is a strong tool to break the poverty cycle. Credit could also be used, albeit in a slightly riskier fashion, to invest in other businesses and or co-ops.

 

Behaviour: Credit at such small fiscal levels can contribute to national GDP (especially in developing countries) if it is accessible to a great number of people and responsibly lent. Barring the excesses of abusive or non-sustainable lending practices, a well regulated micro-loan system present in many countries could in fact theoretically support aggregate demand in the global economy – at least for basic or raw materials

 

Micro-Insurance

 

Purpose: To provide social protection to workers near or beneath the poverty line. Social protection in this instance can be defined basically as: insurance for crop failure, disability or death, and unemployment.

 

Benefit: Micro-insurance allows for a certain amount of psychological stress to be lifted from the minds of the poor. The knowledge that even if all fails, support will be there to get one from non-productivity to productivity, which allocates a degree of mental peace and lessens the callous effects of neoliberal economics.

 

Behaviour: The role played by insurance at that level in the global economy is not as marginal as it perhaps appears. Workers at the lowest level of the economy are the ‘innocent poor’ that are most affected by unjust economic practices at the global level. These billions are pushed to extremes when the economy turns and without insurance they often lose their productivity as they are faced moreso with the task of surviving rather than producing. Thus micro-insurance helps to keep these individuals productive in the sense of human capital (if not forced to survive, but yet no work is to be done, thinking and human ingenuity has greater chances of ensuing and thus continuing productivity).

 

Micro-Savings

 

Purpose: To accumulate capital for a variety of reasons.

 

Benefit: There are a host of benefits related to savings. For poor individuals some practical benefits are (inter alia), capital accumulation creates a fiscal buffer if hard times should fall; savings allow for investment in business, children, or personal development; it creates more capital; and it provides more economic flexibility. Savings also has the potential to spark growth in infrastructure, culture, and protect women and children from the worst forms of labour.

 

Behaviour: Although savings are currently considered a bane for the short-term recovery (by certain economists, this is not the author’s view) of the economy, they do have positive long-term impacts for the economy (Stiglitz, 2009). The most notable role savings plays in national and global economies is that it allows individuals to transform monetary capital into productive assets which can in turn produce more capital and continue the consumptive cycle. Poor people the world around know that it is dangerous to live beyond one’s means. Is this perhaps a lesson to (re)learn for economic giants?

 

 

Conclusion

 

It is at this stage inferable that microfinancial instruments do play an important role in national and international economies. This stipulation supports the point that microfinances should be afforded discussion at the upcoming G20 Summit in London. Their central importance to upholding the practice of Decent Work and mitigating the harsh effects of neoliberal economics provides a better condition of life to many millions of people and has the potential to extend to all poor workers. The fact that macroeconomic tools are disengaged from the individual and typically do not support social justice, different financial alternatives must be sought out.

As Lord Brown said, new economic instruments must be devised so as to make sure a crisis of this type is avoided in the future. Microeconomic instruments are here and they are new. It certainly seems like the time for macroeconomies to take on their use and make the most of their benefits.

 

 

Works Cited

 

Brown, Lord Mark Malloch. “Speech Presented at ILO,” March 5, 2009.

 

Stiglitz, Joseph. “Speech Presented at ILO,” March 12, 2009.