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Suddenly, out of the blue, a debate about microfinance and child labour has erupted. Why?
Underage work caused by microloans is an uncomfortable topic for the microfinance sector, given the moral panic easily associated with child labour. It’s nearly impossible for the industry to publicly make dismissive or nuanced statements on the issue. David Roodman (self-styled “impertinent inquirer“) has now stepped up to the plate, publishing a thought-provoking short essay on his blog which critiques recent moves towards – or rather: rumours of some consideration being given to the idea of – enshrining policies against child labour in the microfinance sector’s transnational self-certification schemes.
Yes indeed, what are we going to do about it?
Photo: Children’s Bureau Centennial, Creative Commons Attribution 2.0 Generic
Roodman assumes Hugh Sinclair (self-styled “microfinance heretic“) to be a driving force behind this. While I have my doubts about it being that simple, I do think that, while not a driving force, Sinclair could be a contributing factor.
Which, incidentally, brings me to my hypothesis about the actual issue of child labour. Is microfinance a driving force? Hell no. Could it be a countributing factor? Logically yes. Consider these two very simplified causal chains:
Over on his blog and on Indian financial news site Moneylife, microfinance expert Ramesh Arunachalam has started an interesting series of posts. They investigate the charges levied by Hugh Sinclair against microfinance investment vehicles (MIVs; or microfinance investment funds) in his recently published book, Confessions of a Microfinance Heretic. Arunachalam is approaching the questions raised by the book with his characteristic meticulous diligence; very data-driven. As usual, he raises poignant questions rather than easy answers, and I strongly suspect his detective work will remain a delight to follow.
Incidentally, some of the points raised by Sinclair’s book are very close to Arunachalam’s fascinating causal reconstruction of the Indian microfinance crisis. The two most obvious ones are: (1) lack of transparency and meaningful regulation in the microfinance industry, in Indian microfinance as well as in the global microfinance investment sphere. (2) The pressures of capital, in that agents bestowed with large amounts of easy money under these circumstances are unlikely to make wise decisions (let alone decisions truly benefitting their stakeholders). These are Indian MFIs who lend as if throwing money from helicopters, or global MIVs investing in low-quality-high-profitability MFIs because they need an easy outlet for their money.
Particularly interesting is that Arunachalam asked investors for statements or rebuttals to Sinclair’s allegations, apparently to no avail or evasive answers. Also, reports promised by the microfinance transpareny/labeling initiative LuxFLAG were not available. So it will be interesting to see if Arunachalam finds out what some investors’ explanations are for having continually invested in the evidently non-law-abiding Nigerian MFI LAPO.
Also, David Roodman at the Centre for Global Development has reviewed the book, his main contribution being to “add nuance”. He too sees the key message of “Confessions…” in its exposition of the uniquely problematic role played by MIVs in the microfinance money chain, even though he criticises it for its critical tone. No comment on Roodman’s discussion of different people’s character traits (at bottom).
Last-minue addition: Sam Mendelson, co-author of the Microfinance Banana Skins reports, concludes “Ultimately, Confessions is frustrating and fascinating in equal measure” in a similarly even-handed but more personal review on microfinance focus.
Next week sees a high-profile head-to-head between two of the leading voices on microfinance. In a debate hosted by the United States Agency for International Development (USAID) in Washinton D.C. on Monday, 30 January at 9:00 a.m./14:00 GMT/15:00 CET, David Roodman (Center for Global Development, USA) and Milford Bateman (University of Pula, Croatia) will have alot to discuss.
(P.S. See also below for information about a debate at Harvard University on 2nd February with Guy Stuart.)
The past few years have been particularly turbulent, with a succession of microfinance crises, growing overindebtedness, borrower suicides, disappointing impact findings, and a prize-winning Norwegian documentary contributing to Muhammad Yunus being removed from office as head of Grameen Bank.
The two debaters have met in the past. Bateman first brought a critique of microfinance into the mainstream with his 2010 book, which Roodman heavily criticised. Roodman has made a name for himself as a prolific and insightful blogger with the open book blog he kept while writing the book he recently published.
Whether Roodman’s book (endorsed by Muhammad Yunus) is anything as “impertinent” as it claims to be; what to think of Bateman’s musings about the “end of microfinance?”; and why the best evidence of microfinance’s impact on poverty still is “zero”, will be questions likely affecting the debate as much as the official debate question (which USAID succeeded in making so overwhelmingly dull I fear it may even scare off Washington development brass):
In 2002 in the run-up to the USA’s second invasion of Iraq, when he was challenged about the allegations made by the Bush administration about Iraq’s weapons of mass destruction (WMD) arsenal, Donald Rumsfeld made a memorable logical statement: “The absence of evidence is not evidence of absence. … Simply because you do not have evidence that something exists does not mean that you have evidence that it doesn’t exist.”
A parody of Rumsfeld from the (massively under-appreciated) comic series “The Boondocks”. Warning: coarse language.
In terms of twisted logic, Rumsfeld was right: the fact that intelligence couldn’t find conclusive proof for WMDs in Iraq didn’t necessarily mean they weren’t there; their available methods simply weren’t good enough to find them. But empirically, of course, he was wrong: as we now know, the reason why no proof was found for the WMDs was, they simply weren’t there.
Fast-forward to 2011, to a debate about the evidence for positive impacts of microfinance. Six British researchers recently published an exhaustive study (actually a Systematic Review, S.R.); as I explained on this blog, they pulled together all existing 2,643 publications about microfinance’s impact and looked in depth at the best 58.
Their conclusions – which are too complex and fine-grained to really present in a nutshell – effectively: (1) raised doubts about the research designs used so far, (2) re-iterated that the available evidence could “neither support nor deny the notion that microfinance is pro-poor and pro-women”, and (3) suggested that there has been an “inappropriate optimism towards microfinance”. And finally, they suggested that pursuing microfinance without proof that it works bears the risk of not running other programmes which could work better – opportunity cost. Read the rest of this entry »
Milford Bateman’s book Why Doesn’t Microfinance Work? has generated heated discussion, with blows not always struck very far above the belt. Recently, I got involved by recapping and analysing several book reviews published on the web. I was critical of the tone and substance of David Roodman’s review (published on his blog, of which I remain a fan, notwithstanding), because I felt it attacked the person more than the argument, and it didn’t engage with Bateman’s overall point that microfinance is politically useful while economically questionnable.
David Roodman has responded to this challenge in a more elegant and eloquent piece than his original review. Some allegations against Bateman’s writing have been clarified, new ones have appeared. I think Roodman is still off with his accusations of “sloppy thinking” and “extremism”. I would still like to see Roodman engage with Bateman’s overall argument.
Most of the criticisms launched against the book (by diverse authors) have validity; however, I would urge those who dislike the work to beware the trap of accusing Bateman of what they see him as accusing others of, namely malignance. In plainer English: try to measure the book and your reaction by the same standard.
Here are my (less brief than intended) responses to what I see as David Roodman’s main points:
One of the things that make blogs particularly interesting are series. The “series” series recommends series at related blogs. This time, Phil takes up the initiative and introduces a series he has particularly enjoyed: the book chapter releases on David Roodman’s Microfinance Open Book Blog.
Okay, maybe technically this isn’t really a series. But since February 2009, when David Roodman (who is a senior fellow at the Center for Global Development CGDEV and also the father of the fascinating “Committment to Development Index”, CDI) began sharing the progress he was making on his new book, his blog has become one of the most prolific and insightful blogs about microfinance. And on that blog, the central recurring theme has been the book chapters which David has incrementally released.
David’s book (which, it seems, is now finished to a draft level) was presented via occasional single-chapter releases. These frequently produced interesting discussions among the blog’s growing readership, which notably includes an array of high-profile development intelligentsia members like Harvard Professor Lant Pritchett, senior cooperative banking expert Hans-Dieter Seibel, and development über-academic Bill Easterly.
Perhaps it is less the book and more the wide range of controversial issues covered – from double-borrowing and microfinance bubbles to the heavy-hitting disappointing RCT impact studies (and the industry’s disappointing reaction to them) – processed through Roodman’s brilliant analysis, which have led his readership to read his take again and again.
Most laudably, this blog also gives outspoken microfinance critics like Milford Bateman an open forum to engage in cultured discussion with microfinance’s supporter community away from the less tolerant industry-operated “discussion” forums. I too don’t see eye-to-eye with David on many issues concerning microfinance, and would often consider a more critical tone to be justified. But his blog and the upcoming book definitely provide some of the sharpest and most thoughtful discussions of those questions which currently shake and shape the microfinance industry (against its will), and make microfinance the controversial subject which it is. Big props.