Microfinance and Amartya Sen's capability approach - eTheses

321 Pages·2011·1.31 MB·English

by  Chuan Chia Tseng

MICROFINANCE AND AMARTYA SEN’S CAPABILITY
APPROACH

by

CHUAN CHIA TSENG

A thesis submitted to the University of Birmingham for the degree of
DOCTOR OF PHILOSOPHY

Institute of Philosophy
School of Philosophy, Theology and Religion
College of Arts and Law
University of Birmingham
September 2011
University of Birmingham Research Archive

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Abstract

There are two main motivations for undertaking this thesis on Sen’s capability approach and
microfinance. One is to evaluate Sen’s capability approach by considering moral philosophy
(utilitarianism and John Rawls’ theory of justice) and developmental ethics contexts. The other is to
analyse the impact of microfinance on poverty reduction in accordance with Sen’s approach. This
thesis argues that Although Sen’s capability approach has drawbacks, both as a general moral theory
and as a theory of justice, it does bring up important aspects of development and poverty reduction.
When the empirical evidence is combined with criteria from the capability approach, microfinance is a
relative failure as a poverty-reducing approach. The evidence that micro-loans reduce poverty is weak,
and there are moral arguments against the group lending approach that is used to assure repayments.
Other services sometimes associated with microfinance – savings and insurance — do help the poor,
however. However, we should notice that the conclusion I propose here does not exclude the
possibility that perhaps microfinance does help promote some other freedoms that are of significance
locally.

Abstract and Access form Library Services April 2011
Acknowledgements

First and foremost, I am heartily thankful to my supervisor Tom Sorell, whose
encouragement, guidance and support from the initial to the final stage enabled me to
finish this thesis. Tom’s exceptionally extensive comments on each of the sentences of
my draft helped me improve each part of the thesis.
I would like to show my gratitude to several dear friends. Ip has always been a
great inspiration for me. Ip encouraged me to study abroad, giving me helpful and
practical advice on my thesis. In fact, without Ip’s recommendation, I would never
have a chance to study at University of Birmingham. I cannot thank him enough for
this. Joakim Sandberg and John Guelke gave me extensive and extremely helpful
ideas during the writing process. Joakim’s and John’s vivid and rigorous thinking
helped me refine philosophical arguments. I have learned a lot about both philosophy
and life through our conversations. Merrilyn Onisko has made my thesis clear and
readable. As my housemates, Lasse Kyllonen and Johanna Herttuainen have always
encouraged me when I was daunted by philosophical problems.
Being a member of a Research Network in Microfinance and Global Justice issues
funded by one of the UK research councils and based in the Centre for the Study of
Global Ethics (University of Birmingham) was a unique and invaluable experience
in that I have benefited a lot from the scholars and practitioners specialised in
philosophy, social development, and microfinance. In particular, I would like to
thank Jonathan Morduch and Marek Hudon for giving me helpful advices on my
thesis. I would also like to thank participants in the seminar in philosophy at
University of Birmingham.
Finally, my deepest appreciation goes to my family for their deepest love and
unconditional support. I would like to dedicate this thesis to my brothers Victor,
Alain, my mom Jenny, my wife, Monica, and my sons Ike and Spike.

Chuan Chia Tseng
Birmingham, September 2011
Contents

Chapter One: Introduction 1
Chapter Two: Sen’s capability approach 12
Chapter Three: Possible theories of well-being and poverty – Rawls’ theory of
justice and utilitarianism 41
Chapter Four: The foundation of Sen’s capability approach 87
Chapter Five: Objections to Sen’s capability approach as a comprehensive
evaluation framework of well-being and poverty 106
Chapter Six: An introduction of microfinance – the concept and recent trends
in microfinance business 148
Chapter Seven: The assessment of microfinance through the lens of Sen’s capability
approach 237
Conclusion 299
References 302
Chapter One
Introduction
Most of us live in societies that are comfortable and secure. However, as of 2008, over
one-fifth of the world’s population (1.4 billion) lives on less than $1.25 a day.
According to the World Bank (2008), as of 2005, over three billion people, almost
half of the world’s population, live on less than $2.50 a day1. Although people’s
opinions on the issue of how income and wealth should be distributed are still divided,
there is a growing consensus that no one should live in extreme poverty. Despite
countless NGO’s and international aid agencies having initiated various poverty
reduction programs, poverty continues to grow, and billions of people, in particular,
women and children, lack the necessary money, food, healthcare, education, and
resources to fulfill basic human needs. This not only leads to them suffering
chronically but very often to death.
According to a survey by the United Nations (UN), over 840 million people
around the world suffer from hunger every day, over 100 million people have no
housing, and about one-sixth of the world’s population is illiterate2. Moreover,
approximately 1.1 billion people in developing countries do not have adequate access
to water. According to the United Nations Children’s Fund (UNICEFA),

1 World Bank Development Indicators 2008. Available at data.worldbank.org/indicator.
2 Untied Nations Poverty Curriculum, http://www.un.org/cyberschoolbus/poverty2000/food.asp
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approximately 148 million children under the age of 5 in developing countries are
underweight; 22 million infants are not protected from vaccine-preventable diseases;
8 million children died before the age of 5 in 2009; 2 million children under 15 years
are infected with HIV; nearly half a million women die each year from causes relating
to pregnancy and childbirth3. Also, approximately 22,000 children die due to poverty4
and nearly a billion children were unable to read or sign their names when entering
the 21st century5. Indeed, these reports only show a fraction of the reality of how
people suffer from living in impoverished conditions. However, they are enough to
make me feel that it is a privilege to sit down and discuss poverty.
While many experts in development and poverty reduction have been frustrated by
not being able to find an effective approach to eliminate poverty and a great number
of people are still living in miserable conditions, a new approach to poverty
reduction – microfinance, a practice involving the provision of small loans to people
without conventional collateral and other financial services such as microsavings and
microinsurance – has reignited their hope of eradicating poverty. Academics, social
activist entrepreneurs, and economists throughout the world have become fascinated
by this innovative approach. Moreover, the United Nations pronounced 2005 as the
Year of Microcredit, with Muhammad Yunus, founder of Grameen Bank, receiving the

3State of the World’s Children, 2010. Available at
www.unicef.org/rightsite/sowc/pdfs/SOWC_Spec%20Ed_CRC_Main%20Report_EN_090409.pdf
4Ibid.
5 The State of the World’s Children, 1999. Available at www.unicef.org/sowc99/index.html
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Noble Peace Prize the following year.
Indeed, the hope that poverty can be eliminated by introducing poor people to
microfinance has been boosted by hundreds of inspiring stories about how poor
people use tiny loans to start or expand their small businesses and how they have
experienced remarkable gains not only in income and consumption but also in health,
education and social empowerment. Moreover, microfinance practitioners use these
successful stories as evidence to obtain support from international donors and
investors. Muhammad Yunus’ claims that microfinance plays a significant role in
poverty reduction and enhancing peace are often heard (Yunus 1999, 2009). Such a
claim is not only used by Grameen style (village banking) microfinance institutions
but also by commercially driven microfinance institutions. However, do these
anecdotal cases allow us to claim that microfinance does actually reduce poverty? To
investigate how microfinance contributes to poverty reduction, we inevitably have to
answer some other equally important questions, such as how is the term ‘poverty’
defined? Should poverty be defined by the status of lacking money or something else?
Certainly, when someone is poor, their well-being or quality of life is low. However,
how should we assess an individual’s well-being? Moreover, if microfinance does not
increase poor people’s income, can we claim that microfinance does not contribute to
poverty reduction at all? These intriguing issues suggest that there is a need for a
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theory of poverty and well-being that is able to adequately define and explain the
relation between the notions of poverty, well-being and development.
There are two main motivations for undertaking this thesis on Sen’s capability
approach and microfinance. One is to evaluate Sen’s capability approach by
considering moral philosophy and developmental ethics contexts. The other is to
analyse the impact of microfinance on poverty reduction in accordance with Sen’s
approach.
The methodology used to assess Sen’s capability approach is: (1) to compare it
with other possible competing theories, in particular, Rawls’ theory of justice and
utilitarianism, and (2) to reply to objections to Sen’s work. It is clearly impossible to
go deeply into these potentially competing theories in a work of this length. However,
it is hoped that the discussion will be in enough detail to show the strengths and
weaknesses of Sen’s theory as a theory of well-being and poverty. While Sen’s
capability approach has generated significant support from academics, international
agencies, NGOs, public officials and those who engage in civil society, it has also
been scrutinised and criticised by many scholars and experts who specialise in the
poverty reduction and development field. Given the time and space available, this
research will be unable to go into every critique from every direction. Instead, the
reply to objections towards Sen’s capability approach will focus on objections from
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philosophical and economic perspectives.
Economists and development experts agree that Sen’s capability approach
provides an insight into the notions of well-being, poverty and development. However,
they have found that it is difficult, if not impossible, to apply Sen’s capability
approach empirically. Empirical impracticability involves the problems of identifying
basic capabilities, setting proper threshold levels and developing an overall evaluation
of well-being. Philosophers have also raised fundamental questions regarding the
character and justification of Sen’s capability approach. One set of objections argues
that the sufficient threshold feature embedded in Sen’s capability approach will (i)
lead to a situation in which too many social resources are devoted to vulnerable
groups; (ii) arbitrarily set the proper threshold level; and (iii) pay no attention to
inequality above the threshold. Moreover, philosophers question the validation of
people’s decisions about basic capabilities and the threshold of each basic capability.
They argue that there is tension or conflict between a person’s direct participation in
selecting a list of basic capabilities and having a morally justifiable list of basic
capabilities. In other words, capabilities are considered basic because they are thought
to be by citizens and may not belong to a morally justifiable list of capabilities
promoted by development. For example, Martha Nussbaum, one of the most
influential capabilities theorists, insists on having a list of basic capabilities that is
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