Lately I’ve been lazing in the Danish sunshine on a bench in the park, reading ‘The Process of Economic Development’ by James M. Cypher & James L. Dietz (2009). And I must say, especially the chapter 11 ‘Agriculture and Development’ caught my attention. It’s extremely related to the core idea of MYC4.
Agricultural loans are quite pervasive on the MYC4-platform – that fact hardly comes as a surprise to anyone – and the very idea of credit for an irrigation system is the basis for the ‘How MYC4 works’-video. But this idea obviously hasn’t sprung out of thin air. It’s founded on academia concerned with development in an economic perspective.
Internal and External Factors
Generally, the barriers to development can be divided into internal and external factors.
- Internal factors are whatever processes within a country, such as the level of infrastructure, education and corruption – just to name a few – which can lead to increased/decreased development (be that economic growth, higher equality or the feeling of happiness – that’s another discussion).
- External factors are processes which impact on the development of a country from without, such as trade barriers, multinational corporations and the availability of foreign investment.
Wait, what was that? ‘The availability of foreign investment’. Yes, exactly, as it’s defined in the very introduction of the 612-page-book. But of course, not many hardly ever thought this could be done on a person-to-person level(!).
The 3 distinctive barriers
Now to the chapter I mentioned above. In here, there’s a sub-chapter named: ‘Production problems in cash crops’ , in which the authors name three distinctive barriers to production:
- Appropriate technology
- Labor supply, and
- Credit markets
What are cash crop farmers?
The authors define that cash crop farmers “produce almost entirely for the market with the aid of four to twelve agricultural workers hired on a permanent basis. Such farmers are important to any successful development strategy”.
The missing Credit Market
Let me quote a few lines:
… bankers infrequently establish banks in the small and medium-sized villages and towns near where cash crop farmers operate. Bankers are rarely trained in agricultural production or its special problems, and they are not necessarily receptive to the petitions of farmers for credit, particularly small and medium-sized landholders. … [R]ural lending tends to be outside the expertise, or interest, of urban center banks with loanable funds. Credit, then, is too often of limited availability in rural areas.
Sounds familiar? This is exactly the focus of many of our local partners! I just want to point out, that the very essence of MYC4s activities is modelled upon some of the newest academic discussions in relation to development. Yes, it can still very much be argued whether government policy to channel credit through agrarian development banks would be better or worse than microfinance institutes, but the mission and the goal very much seems the same, doesn’t it?
The Bottom of the Pyramid – Low-income households
Also, the idea behind MYC4 is completely in line with the thoughts of C. K. Prahalad, author of ‘The Fortune at the Bottom of the Pyramide’. His view is to create products for the people with the lowest income, instead of always focusing on those with plenty to spend. In other words: Let’s channel investments to the bottom of society to enhance a ‘bottom-up’-effect instead of a ‘top-down’.
Not a proof, just a logical line of thoughts
No one has yet proven that microfinance creates economic growth. But then again, no one has proven that hardly anything creates economic growth – it all depends on the context. Neither has it been proven that inequality between the rich and poor part of the population shrinks as a result of microfinance. But summing up the conclusions of the above academia, doesn’t it logically feel like microfinance and MYC4 is on to something meaningful here? I’ll leave that up to you to decide.