From debt to over-indebtedness Processes, practices and meanings Workshop, Paris. 7-8 December 2009 45 bis, avenue de la Belle Gabrielle 94736 Nogent-sur-Marne
RUME - Développement et Sociétés UMR 201 - CIESAS
Questions to be addressed Household over-indebtedness has been an important feature of the current financial crisis. The sub primes crisis in the US has revealed that millions of North American households face over-indebtedness. Outside the US, over several years an increasing number of European households have become vulnerable financially and also face over-indebtedness. Commissions, studies and statistics have steadily accumulated on the subject, but household over-indebtedness in so-called developing countries has attracted surprisingly little attention. It is nonetheless likely that the economies of the South have just the same difficulties, as they face three major problems which have underpinned household over-indebtedness in developed countries. These are firstly a slowdown in economic growth, secondly an absence of wealth redistribution accompanied by rising inequality, and thirdly the increased desire to consume by way of imitation, both amongst the middle classes and the poor. Although a critical issue, this state of affairs has not yet been subject to theoretical or empirical analysis by academics, donor agencies and policy makers. The main purpose of this interdisciplinary seminar will be a theoretical and empirical examination of over-indebtedness from the perspective of southern countries, with the following underlying hypothesis: to define and analyze the process of indebtedness requires first an understanding of the complexity and diversity of debt relationships.
The following questions might be addressed: 1) The social meaning of debt, creditworthiness and over-indebtedness It would be misleading to limit ourselves to an economic conception of debt, creditworthiness and over-indebtedness. Taking on debt or lending money can be a sign of social inclusion, working from the assumption that individual behaviours do not have a solely economic dimension. Indebtedness and saving reinforces a sense of social belonging, whether characterised by domination, dependency or equality. The poor often accumulate debt and credit and repay loans according to their own informal hierarchies and calculation frameworks. Such phenomena transcend questions of material or self-centred motivations, and reflect issues of status, honour and power, as well as individual and group identity. As a result, the same amount of debt with the same cost can have a multiplicity of meanings and diverse consequences, depending on the nature of the social relationship between the lender and the borrower. Some debts have a primarily monetary value, whilst others have a primarily social value. Some debts are meant to be repaid, whilst others are not, or repayment might be delayed. Some debts are viewed as a right, others as a due, privilege or punishment. Certain financial relationships lending to analysis as debt relationships might not be perceived as such by those who experience them. In other words, debt as a term should be defined according to local contexts. In contexts of growing monetization, ‘modernisation’ and ‘individualism’, where customary identities (family, ethnicity, caste, gender, religion) are increasingly mixed with constructed and ‘modern’ identities (professional, neighbourhood, political, NGO, etc.), how do people, whether lenders or borrowers, value and establish the importance of debt? Does it make sense to contrast ’contractual’ with ’traditional’ debt, as embedded in a set of rights and obligations? How is creditworthiness defined, bargained and negotiated? The question of trust is without doubt essential, but how is trust constructed?
2) Financial ‘markets’ and financial providers The understanding of the process of over-indebtedness also requires consideration of supply and the nature of lenders. We already know that the cliché of exploitative and greedy usurers, a much-favoured caricature amongst the media and decision makers, does not stand up to factual analysis. Despite this, it is not easy to achieve a clear vision of credit suppliers. Both local and informal financial markets are extraordinarily diverse and continually evolve, such that some lenders disappear whilst others emerge. Examples include former peasants looking for alternative sources of money, migrants, financial companies, and microfinance organizations. The continuous evolution of local financial markets is demonstrative of, as well as an agent in the ongoing reconfiguration of local social and political arenas, and therefore deserves a specific analysis. It would therefore be valuable to investigate lender profiles, the conditions of their activity and the workings of local financial markets, for example in terms of segmentation, competition, and barriers to entry.
3) Financial culture The poor are often accused of lacking in any financial literacy: apart from the greediness of lenders, over-indebtedness is said to be the result of their inability to plan, calculate, anticipate and save. Such a stereotype reflects a profound ignorance of the complexity of local financial reasoning and cultures. Much reasoning does lie behind people’s financial practices, but the content of this remains to be defined and explored: what are the indicators, cognitive categories, conventions, habits and local categories of such thought? What vision of time do people, whether lenders or borrowers, use? Understanding the diversity and complexity of financial behaviours demands a temporal perspective, approaching differences in lenders’ and borrowers’ visions of time. We can consider the immediate needs associated with daily survival, those associated with life-cycle events, or social and religious rituals, or that are in fact investments spanning over a lifetime or even several generations. Here too, behaviours and ‘mental models’ do not remain static: to what extent do new forms of lending such as microfinance and financial companies, which are supposed to be based on ‘contractual’ relationships, introduce new types of reasoning and behaviours?
4) Impoverishment and accumulation
Over-indebtedness is the outcome of a process, but how does a household fall into over-indebtedness and what are its consequences for the household? Beyond specific case studies, is it possible to identify categories and typical paths? What are the processes by which debt can lead to poverty? When is debt a source of impoverishment, or conversely a source of accumulation? Under what conditions can debt serve to extract or attract wealth? This question can be raised at individual/household, community, or territorial level. It is inseparable from a contextualized analysis of issues such as property rights, labour relationships and consumerism. Cost and interest rates are obviously a key issue, but not sufficient. Cost should be contextualised, as interest rate has no meaning of itself: tolerance to the cost of money varies along cultural, social and religious lines, and the ability to tolerate a certain level of interest varies significantly according to sector of activity and profitability. Meanwhile, the issue of the conditions of loans demand many further considerations, including flexibility and negotiability, which are essential given local management cash flow systems, and considerations of social costs such as discretion and anonymity.
What is the meaning, if any, of ‘over-indebtedness’ in the context of southern countries? Where are its boundaries, and who defines it? Which criteria are used to define over-indebtedness, and who sets them in each context? Is it a matter of the inability to repay, impoverishment, dependency, or the fact of social exclusion? What timeframe should we apply? Defining over-indebtedness implies the investigation of the social, historical and economic dimensions of debt, whether in their traditional forms (intergenerational, debt bondage, tied labour, etc.), or their most contemporary manifestations. Finally and just as importantly, is it possible to measure over-indebtedness? Such analysis could deal with the current criteria in use, but also the social construction of ‘over-indebtedness’ as a category.
List of participants/ speakers
Lourdes del Carmen Angulo-Salazar, Ciesas, Mexico Laurence Fontaine, EHESS, France Isabelle Guérin, UMR 201 Développement et sociétés, France Agata Hummel, Varsovia University, Poland Barbara Harriss-White, Queen Elisabeth House, Oxford, UK Marek Hudon, CERMi, Université Libre de Bruxelles Susan Johnson, Bath University, UK Solène Morvant-Roux, UMR 201 Développement et sociétés, France Daniel Neff, Manchester University, UK Wendy Olsen, Manchester University, UK David Picherit, Nanterre-Paris X, France Marc Roesch, CIRAD, France Jean-Michel, Servet, IHEID, Switzerland Magdalena Villarreal, Ciesas, Mexico Betty Wampfler, Supagro, France (to be confirmed) Francesco Zanotelli, Siena University, Italy
Contact and information
Isabelle Guérin, Solène Morvant-Roux Institute of Research for Development, Paris-I Sorbonne Research Team "Development and Society" http://recherche-iedes.univ-paris1.fr Research Project "Rural microfinance and employment: do process matter?" http://www.rume-rural-microfinance.org/
Contact: IEDES Campus du Jardin d’Agronomie Tropicale de Paris 45 bis avenue de la Belle Gabrielle 94736 Nogent-sur-Marne France Tel: 0033672065266 Mel: email@example.com; firstname.lastname@example.org